10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549

FORM 10-Q

(Mark One)

[X]	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the quarterly period ended June 30, 2002
	or
[   ]	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _________________ to ________________

Commission File Number: 000-25273

INSURANCE MANAGEMENT SOLUTIONS GROUP, INC.

(Exact name of registrant as specified in its charter)

Florida	59-3422536
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

360 Central Avenue, St. Petersburg, Florida	33701
(Address of Principal Executive Offices)	(Zip Code)

(727) 803-2040

Registrant’s telephone number, including area code

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES [X]      NO [   ]

Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of the latest practicable date:

Class: Common Stock, $.01 par value                        Outstanding as of August 8, 2002: 12,276,063

TABLE OF CONTENTS

	ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY
CONSOLIDATED STATEMENTS OF CASH FLOWS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
	ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
	ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
PART II. OTHER INFORMATION
	ITEM 1. LEGAL PROCEEDINGS
	ITEM 5. OTHER INFORMATION
	ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
SIGNATURES
EXHIBIT INDEX
Agreement and Plan of Merger
Insurance Services Agreement
Second Amendment to Insurance Services Agreement
Credit and Security Agreement
Revolving Line of Credit Promissory Note
Collateral Assignment of Flood Book
Further Assurance and Compilance Agreement
Certificate of CEO
Certificate of CFO

INSURANCE MANAGEMENT SOLUTIONS GROUP, INC.

Form 10-Q Quarterly Report

TABLE OF CONTENTS

			Page
			Number
PART I. FINANCIAL INFORMATION
	Item 1. Financial Statements			1
		Consolidated Balance Sheets as of December 31, 2001 and June 30, 2002		1
		Consolidated Statements of Operations for the three months and six months ended June 30, 2001 and 2002		2
		Consolidated Statement of Shareholders’ Equity for the year ended December 31, 2001 and the six months ended June 30, 2002		3
		Consolidated Statements of Cash Flows for the six months ended June 30, 2001 and 2002		4
		Notes to Consolidated Financial Statements		5
	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			10
	Item 3. Quantitative and Qualitative Disclosures about Market Risk			15
PART II. OTHER INFORMATION
	Item 1. Legal Proceedings			15
	Item 5. Other Information			15
	Item 6. Exhibits and Reports on Form 8-K			17

The statements contained in this report on Form 10-Q that are not purely historical are forward-looking statements within the meaning of Section 27a of the Securities Act of 1933 and Section 21e of the Securities Exchange Act of 1934, including statements regarding the Company’s expectations, hopes, beliefs, intentions, or strategies regarding the future. Words such as “expects,” “intends,” variations of these words and similar expressions are intended to identify forward-looking statements. Forward-looking statements include statements regarding, among other things: (i) the proposed tender offer and subsequent merger; (ii) trends affecting the Company’s financial condition or results of operations; (iii) the Company’s operating strategies; (iv) changes in the business and/or financial condition of the Company’s clients; (v) the ability of Bankers Insurance Group, Inc. (“BIG”) and its affiliates to repay outstanding indebtedness to the Company; (vi) potential increases in the Company’s costs; (vii) the impact of general economic conditions on the demand for the Company’s services; (viii) the impact of changes in existing service agreements; (ix) the outcome of certain litigation involving the Company; (x) the outcome of certain administrative proceedings involving the Company’s principal customer; (xi) the ability to achieve expected expense reductions as a result of management initiatives; and (xii) the Company’s liquidity and capital resources. Prospective investors are cautioned that any such forward-looking statements are not guarantees of future performance and involve risks and uncertainties, and that actual results may differ materially from those projected in the forward-looking statements as a result of various factors. All forward-looking statements included in this document are based on information available to the Company on the date hereof and the Company assumes no obligation to update any such forward-looking statement. Among the factors that could cause actual results to differ materially are the factors detailed in Part I, Item 2, and Part II, Item 5 of this report and the risk factors set forth under the caption “Item 1. Business — Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2001, as filed with the Securities and Exchange Commission on April 1, 2002. Prospective investors should also consult the risks described from time to time in the Company’s Reports on Form 10-Q, 8-K and 10-K.

i

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

INSURANCE MANAGEMENT SOLUTIONS GROUP, INC.
AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

				December 31,		June 30,
				2001		2002
						(Unaudited)
			ASSETS
CURRENT ASSETS
	Cash and cash equivalents			$	20,095,808	$	21,167,460
	Accounts receivable, trade — affiliates				4,716,172		4,690,803
	Accounts receivable, trade — net				875,297		1,770,804
	Prepaid expenses and other assets				883,729		955,343
	Note receivable — affiliate				5,026,541		—
	Income taxes recoverable				—		1,104,659
		Total current assets			31,597,547		29,689,069
PROPERTY AND EQUIPMENT, net					3,942,712		3,135,233
OTHER ASSETS
	Goodwill, net				2,250,409		2,250,409
	Service contract				2,189,090		2,088,414
	Capitalized software costs, net				564,793		334,445
	Deferred tax assets				429,329		405,829
	Other				25,600		25,600
			Total assets	$	40,999,480	$	37,928,999
			LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES
	Accounts payable, trade			$	1,272,921	$	618,182
	Employee related accrued expenses				1,546,078		1,668,872
	Other accrued expenses				2,352,487		2,847,964
	Income taxes payable				1,418,415		—
			Total current liabilities		6,589,901		5,135,018
SHAREHOLDERS’ EQUITY
	Preferred Stock, $.01 par value; 20,000,000 shares authorized, no shares issued and outstanding				—		—
	Common Stock, $.01 par value; 100,000,000 shares authorized, 12,276,063 shares issued and outstanding at December 31, 2001 and June 30, 2002, respectively				122,760		122,760
	Additional paid-in capital				26,394,438		26,481,160
	Retained earnings				7,892,381		6,190,061
			Total shareholders’ equity		34,409,579		32,793,981
			Total liabilities and shareholders’ equity	$	40,999,480	$	37,928,999

The accompanying notes are an integral part of these consolidated statements.

1

INSURANCE MANAGEMENT SOLUTIONS GROUP, INC.
AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)

			Three Months Ended June 30,						Six Months Ended June 30,
			2001			2002			2001			2002
REVENUES
	Outsourcing services — affiliated		$	12,149,278		$	6,891,875		$	21,731,241		$	13,982,108
	Outsourcing services			3,717,556			3,123,277			4,937,090			4,501,056
		Total revenues		15,866,834			10,015,152			26,668,331			18,483,164
EXPENSES
	Cost of outsourcing services			9,129,550			8,482,732			17,522,041			16,133,524
	Selling, general and administrative			1,558,817			1,922,474			3,292,479			3,662,145
	Management services from Parent			297,835			184,338			652,003			307,184
	Depreciation and amortization			763,826			719,342			1,539,484			1,368,306
		Total expenses		11,750,028			11,308,886			23,006,007			21,471,159
OPERATING INCOME/(LOSS)				4,116,806			(1,293,734	)		3,662,324			(2,987,995	)
OTHER INCOME/(EXPENSE):
	Interest income			39,704			129,859			82,091			274,275
	Interest expense			(1,189	)		—			(3,255	)		—
		Total other income/(expense)		38,515			129,859			78,836			274,275
INCOME/(LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES AND DISCONTINUED OPERATIONS				4,155,321			(1,163,875	)		3,741,160			(2,713,720	)
PROVISION/(BENEFIT) FOR INCOME TAXES				1,582,000			(432,600	)		1,444,400			(1,011,400	)
INCOME/(LOSS) FROM CONTINUING OPERATIONS BEFORE DISCONTINUED OPERATIONS				2,573,321			(731,275	)		2,296,760			(1,702,320	)
INCOME FROM OPERATIONS OF DISCONTINUED OPERATIONS, NET OF TAX				914,117			—			1,343,243			—
NET INCOME/(LOSS)			$	3,487,438		$	(731,275	)	$	3,640,003		$	(1,702,320	)
Earnings/(loss) per Common Share:
	Income/(loss) from continuing operations		$	.20		$	(.06	)	$	.18		$	(.14	)
	Income from discontinued operations			.07			—			.10			—
NET INCOME/(LOSS) PER COMMON SHARE			$	.27		$	(.06	)	$	.28		$	(.14	)
Weighted average common shares outstanding				12,800,261			12,276,063			12,800,261			12,276,063

The accompanying notes are an integral part of these consolidated statements.

2

INSURANCE MANAGEMENT SOLUTIONS GROUP, INC.
AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY

					Additional
		Common			Paid-In			Retained
		Stock			Capital			Earnings			Total
Balance at December 31, 2000		$	128,002		$	27,545,901		$	5,438,685		$	33,112,588
	Compensation expense related to stock options issued to non-employees		—			180,000			—			180,000
	Common stock reacquired in Geotrac sale		(5,242	)		(1,331,463	)		—			(1,336,705	)
	Net income		—			—			2,453,696			2,453,696
Balance at December 31, 2001		$	122,760		$	26,394,438		$	7,892,381		$	34,409,579
	Compensation expense related to stock options issued to non-employees (unaudited)		—			86,722			—			86,722
	Net income/(loss) (unaudited)		—			—			(1,702,320	)		(1,702,320	)
Balance at June 30, 2002 (unaudited)		$	122,760		$	26,481,160		$	6,190,061		$	32,793,981

The accompanying notes are an integral part of these consolidated statements.

3

INSURANCE MANAGEMENT SOLUTIONS GROUP, INC.
AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

					Six Months Ended June 30,
					2001			2002
CASH FLOWS FROM OPERATING ACTIVITIES:
	Income/(loss) from continuing operations				$	2,296,760		$	(1,702,320	)
	Adjustments to reconcile net income/(loss) to net cash provided by operating activities:
		Depreciation and amortization				1,539,484			1,368,306
		Loss on disposal of property and equipment				1,251			9,909
		Compensation expense related to non-employee stock Options				90,000			86,722
		Deferred income taxes, net				(62,100	)		23,500
		Changes in assets and liabilities:
			Accounts receivable, trade			(547,621	)		(895,507	)
			Accounts receivable, trade — Geotrac			387,027			—
			Accounts receivable, trade — affiliate			(1,871,534	)		25,369
			Income taxes recoverable			—			(1,104,659	)
			Prepaid expenses and other current assets			296,022			(71,614	)
			Other assets			(53,535	)		—
			Accounts payable, trade			(466,294	)		(654,739	)
			Employee related accrued expenses			(311,720	)		122,794
			Other accrued expenses			257,425			495,477
			Income taxes payable			1,114,929			(1,418,415	)
				Net cash provided by/(used in) operating activities		2,670,094			(3,715,177	)
CASH FLOWS FROM INVESTING ACTIVITIES:
	Purchases of property and equipment					(954,722	)		(239,712	)
	Collection of notes receivable					406,394			5,026,541
	Collection of notes receivable from discontinued operations					1,198,929			—
				Net cash provided by investing activities		650,601			4,786,829
CASH FLOWS FROM FINANCING ACTIVITIES:
	Repayment of debt					(129,952	)		—
				Net cash (used in) financing activities		(129,952	)		—
INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS						3,190,743			1,071,652
CASH AND CASH EQUIVALENTS, beginning of period						2,391,103			20,095,808
CASH AND CASH EQUIVALENTS, end of period					$	5,581,846		$	21,167,460

The accompanying notes are an integral part of these consolidated statements.

4

INSURANCE MANAGEMENT SOLUTIONS GROUP, INC.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 1. DESCRIPTION OF ORGANIZATION AND BUSINESS

Insurance Management Solutions Group, Inc. (together with its subsidiaries, the “Company”) is a holding company that was incorporated in the State of Florida in December 1996 by its parent, Bankers Insurance Group, Inc. (“BIG”). The Company has operated in two major business segments: providing outsourcing services to the property and casualty insurance industry with an emphasis on flood insurance; and providing flood zone determinations primarily to insurance companies and financial institutions. The Company’s outsourcing services, which are provided by its wholly-owned subsidiaries, Insurance Management Solutions, Inc. (“IMS”) and Colonial Claims Corporation (“Colonial”), include for IMS: policy and claims administration (policy issuance, billing and collection) and information technology (“IT”) services; and for Colonial: claims adjusting and processing. The Company’s flood zone determination services had been provided by Geotrac of America, Inc. (“Geotrac”), a wholly-owned subsidiary of the Company until December 28, 2001, when it was sold. With the disposition of Geotrac, which is reported as discontinued operations herein, Colonial became a separate reportable segment for financial statement reporting purposes (see Note 6).

The Company is substantially dependent on the business of its affiliated insurance companies under the common control of BIG as the Company derives a substantial portion of its revenue from outsourcing services provided to these affiliated companies and BIG. During the six months ended June 30, 2002, the Company has experienced a reduction in outsourcing services revenue due primarily to continued reduced premium production by BIG and anticipates that this trend will continue for the remainder of the fiscal year. Consequently, the Company is currently focused on implementing cost reduction measures and eliminating support or service expenses associated with the provision of services to BIG.

Further to this reduction in affiliated revenue from BIG, the Company amended its existing Administration Services Agreement, effective October 1, 2001, with BIG (the “Service Agreement” and, as amended, the “Amended Service Agreement”), such that, as of July 1, 2002, the Company no longer provides policy administration or claims processing services for BIG’s personal (i.e., automobile and homeowners) insurance lines of business or claims processing for BIG’s commercial insurance lines of business. The Company will continue to provide policy administration, claims administration and data processing services in connection with BIG’s flood insurance line of business, with no change in the existing fee structure. In addition, pursuant to the Amended Service Agreement, the Company will continue to provide BIG with IT hosting and support services for a fixed monthly fee. The Company will also continue to provide BIG with various other back-office support services, including cash office processing, records management, policy assembly, and print and mail distribution services, in connection with all of BIG’s personal and commercial insurance lines of business.

Also effective July 1, 2002, in connection with the foregoing modifications to the Service Agreement, the Company terminated 98 employees, or approximately 28% of its total workforce. Of these employees, 81 worked in claims processing and 17 worked in policy administration. The Company expects to realize savings of approximately $5.1 million in annual payroll costs and related expenses as a result of this transition and reduction in its workforce. As part of the aforementioned transition of business outsource processing back to BIG, the Company agreed to pay BIG approximately $301,000 to cover estimated processing costs for claims to be processed.

Effective August 12, 2002, the Company amended the Amended Service Agreement. Pursuant to this amendment, the Company will provide additional IT support services to BIG. In return for providing these services, the Company will receive not less than approximately $876,000 in fees from BIG, which is a minimum amount based upon estimated IT usage of the Company’s services. In addition, the Company has agreed to hire eleven persons previously employed by BIG, at an anticipated annualized cost of approximately $764,000.

As previously announced, the Company intends to commence shortly a cash tender off for all of the presently outstanding shares of its common stock, $0.01 per share (“Common Stock”), at a price of $3.08 per share, net to the seller in cash. The offer will be conditioned upon at least a majority of the shares of Common Stock not held by BIG, BIC and BSIC (as hereinafter defined) being tendered and other closing conditions typical for this type of transaction (see “Note 5. Subsequent Events,” following). Pursuant to the BIG Agreement (as hereinafter defined) each member of the BIG Group and each of their affiliates and subsidiaries has agreed not to tender the shares of Common Stock owned by it in response to the tender offer to be made by the Company.

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying consolidated financial statements of Insurance Management Solutions Group, Inc. and subsidiaries (the “Company”) have been prepared in accordance with the instructions to Form 10-Q and do not include all of the disclosures required by accounting principles generally accepted in the United States of America. In the opinion of management, the accompanying unaudited consolidated financial statements include all adjustments, consisting of normal and recurring adjustments, necessary for a fair presentation of the consolidated financial position, results of operations and cash flows for the periods presented. The accompanying consolidated financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2001, as filed with the Securities and Exchange Commission on April 1, 2002. The results of operations for the six-month period ended June 30, 2002 are not necessarily indicative of the results that should be expected for a full fiscal year.

Discontinued Operations

Geotrac represents discontinued operations and, accordingly, the discontinued segment’s net assets are recorded separately at June 30, 2001. Likewise, the Geotrac results of operations are excluded from continuing operations for all periods presented.

5

Reclassifications

Exclusive of the separate presentation of continuing and discontinued operations, certain reclassifications have been made to the 2001 financial statements to conform to the 2002 presentation.

New Accounting Policies

Effective as of January 1, 2002, the Company adopted Statement of Financial Accounting Standards (SFAS) 142, Goodwill and Intangible Assets, and 144, Accounting for the Impairment or Disposal of Long Lived Assets. Further to the adoption of Statement of Financial Accounting Standards (SFAS) 142, Goodwill and Intangible Assets, the Company retained an independent third-party investment banking firm to conduct an analysis of its’ goodwill valuation at January 1, 2002. Under SFAS 142, the impact, exclusive of the non-amortization of goodwill, would have been recognized as a January 1, 2002 cumulative effect change in accounting principle. However, the valuation determined that no impairment of the Company’s goodwill existed as of January 1, 2002.

Proforma results of operations for the three-month and six-month periods ended June 30, 2001 2002 for the non-amortization provisions of SFAS 142 in those periods were compared to same periods for 2002 are as follows:

	Three Months Ended June 30,					Six Months Ended June 30,
	2001		2002			2001		2002
	(Proforma)					(Proforma)
Reported income/(loss) from continuing operations	$	2,573,321	$	(731,275	)	$	2,296,760	$	(1,702,320	)
Add: Goodwill amortization, net of tax, $0		33,094		—			66,189		—
Adjusted income/(loss) from continuing operations	$	2,606,415	$	(731,275	)	$	2,362,949	$	(1,702,320	)
Reported net income/(loss)	$	3,487,438	$	(731,275	)	$	3,640,003	$	(1,702,320	)
Add: Goodwill amortization (including $243,321 and $486,643 pre-tax related to discontinued operations, net of tax of $90,000 and $180,000)		186,415		—			372,832		—
Adjusted net income/(loss)	$	3,673,853	$	(731,275	)	$	4,012,835	$	(1,702,320	)

	Three Months Ended June 30,					Six Months Ended June 30,
	2001		2002			2001		2002
	(Proforma)					(Proforma)
Reported income/(loss) from continuing operations per share	$	.20	$	(.06	)	$	.18	$	(.14	)
Add: Goodwill amortization per share		—		—			.01		—
Adjusted income/(loss) from continuing operations per share	$	.20	$	(.06	)	$	.19	$	(.14	)
Reported net income/(loss) per share	$	.27	$	(.06	)	$	.28	$	(.14	)
Add: Goodwill amortization per share (including $ .01 and $ .02 per share related to discontinued operations, net of tax)		.01		—			.03		—
Adjusted net income/(loss) per share	$	.28	$	(.06	)	$	.31	$	(.14	)
Weighted average common shares outstanding		12,800,261		12,276,063			12,800,261		12,276,063

In addition, effective January 1, 2002, the Company adopted SFAS 144, Accounting for the Impairment or Disposal of Long Lived Assets. The adoption of SFAS 144 had no impact on the Company’s results of operations or financial condition for the six-month period ended June 30, 2002.

Net Income/(Loss) Per Common Share

Net income/(loss) per common share, which represents both basic and diluted earnings per share (“EPS”), is computed by dividing net income/(loss) by the weighted average common shares outstanding. The following table reconciles the numerator and denominator of the basic and dilutive EPS computation:

6

	Three Months Ended June 30,					Six Months Ended June 30,
	2001		2002			2001		2002
Numerator:
Net income/(loss)	$	3,487,438	$	(731,275	)	$	3,640,003	$	(1,702,320	)
Denominator:
Weighted average number of Common Shares used in basic EPS		12,800,261		12,276,063			12,800,261		12,276,063
Diluted stock options		—		—			—		—
Weighted average number of Common Shares and diluted potential Common Shares used in diluted EPS		12,800,261		12,276,063			12,800,261		12,276,063

As of June 30, 2001 and 2002, options to purchase 551,000 and 465,000 shares, respectively, of Common Stock were outstanding but were not included in the computation of diluted earnings per share as the inclusion of such shares would have an anti-dilutive effect.

NOTE 3. DISCONTINUED OPERATIONS

Effective December 28, 2001, with shareholder approval, the Company sold Geotrac pursuant to a Stock Purchase Agreement dated September 30, 2001, as amended December 26, 2001, to Geotrac Holdings, Inc. (“Holdings”). Holdings is a corporation formed by Geotrac’s President and his spouse. The consideration received by the Company included $19.0 million in cash and 524,198 shares of the Company’s Common Stock (valued at $1,336,705 based on a quoted market price of the Company’s Common Stock of $2.55 per share as of December 27, 2001) beneficially held by Geotrac’s President and his spouse. In addition, the Company entered into a Flood Zone Determination Service Agreement with Geotrac pursuant to which Geotrac will provide the Company with flood zone determination services for up to ten years at pricing management of the Company currently believes is favorable. The Company valued the agreement at approximately $2,189,090 as supported by an independent third-party investment banking firm’s valuation. Subsequent to this sale, the Company has no restricted net assets that affect retained earnings for the period ended June 30, 2002.

GEOTRAC’S CONDENSED STATEMENT OF INCOME

		Three Months			Six Months
		Ended			Ended
		June 30, 2001			June 30, 2001
Flood zone determination services		$	5,532,798		$	9,826,966
Flood zone determination services — affiliated			334,436			553,147
	Total revenues		5,867,234			10,380,113
Cost of flood zone determination services			2,526,301			4,560,695
Selling, general and administrative			1,132,763			2,250,691
Management services from Parent			20,126			36,514
Depreciation and amortization			594,642			1,185,135
	Total expenses		4,273,832			8,033,035
Operating income			1,593,402			2,347,078
Other income/(expense), net			(14,185	)		4,565
Provision for income taxes			665,100			1,008,400
Income from discontinued operations		$	914,117		$	1,343,243

7

SUPPLEMENTAL DISCLOSURE OF GEOTRAC’S CASH FLOW INFORMATION
FOR THE SIX MONTHS ENDED JUNE 30, 2001

Operating activities:
Net cash provided by	$	2,884,124
Investing activities:
Net cash used by		(2,041,822	)
Financing activities:
Net cash used by		(1,228,025	)
Net increase/(decrease) in cash		(385,723	)
Cash at beginning of period		2,801,058
Cash at end of period before sale	$	2,415,335

NOTE 4. COMMITMENTS AND CONTINGENCIES

On September 28, 2000, October 25, 2000 and October 30, 2000, three alleged shareholders of the Company filed three nearly identical lawsuits in the United States District Court for the Middle District of Florida, each on behalf of a putative class of all persons who purchased shares of the Company’s Common Stock pursuant and/or traceable to the registration statement for the Company’s February 1999 initial public offering (the “IPO”). The lawsuits were consolidated on December 1, 2000, and the consolidated action is proceeding under Case No. 8:00-CV-2013-T-26MAP. The plaintiff’s Consolidated Amended Class Action Complaint, filed February 7, 2001, names as defendants the following parties: the Company; BIG, Venture Capital Corporation, a selling shareholder in the IPO; the five inside directors of the Company at the time of the IPO; and Raymond James & Associates, Inc. and Keefe, Bruyette & Woods, Inc., the underwriters for the IPO. The complaint alleges, among other things, that the defendants violated Sections 11, 12(a)(2) and 15 of the Securities Act of 1933, as amended, by making certain false and misleading statements in the roadshow presentations, registration statement and prospectus relating to the IPO. More specifically, the complaint alleges that, in connection with the IPO, the defendants made various material misrepresentations and/or omissions relating to: (i) the Company’s ability to integrate Geotrac’s flood zone determination business with the Company’s own flood zone determination business and with its insurance outsourcing services business; (ii) actual and anticipated synergies between the Company’s flood zone determination and outsourcing services business lines; and (iii) the Company’s use of the IPO proceeds. The complaint seeks unspecified damages, including interest, and equitable relief, including a rescission remedy. On March 26, 2001, the Company, BIG and the five inside director defendants filed a motion to dismiss the plaintiffs’ complaint for, among other things, failure to allege material misstatements and/or omissions in the roadshow presentations, registration statement and/or prospectus relating to the IPO. On July 11, 2001, U.S. District Judge Richard A. Lazzara denied all of the defendants’ motions to dismiss the complaint.

The case has been set for trial during the trial term commencing May 5, 2003. On August 6, 2002, the plaintiff offered to accept, in full settlement of the litigation as to all defendants, payment of $2.1 million to the putative plaintiff class. On August 14, 2002, the Company’s Board of Directors voted to accept this offer, and the issuer of the Company’s applicable Directors and Officers and Company Reimbursement insurance policy has agreed to pay this amount to the plaintiff class. The parties to the litigation currently are negotiating the terms of a Memorandum of Understanding (“MOU”), which will memorialize the settlement amount and other material settlement terms. The MOU is expected to provide that the plaintiff may conduct additional discovery to confirm the fairness and reasonableness of the settlement, and that the plaintiff may terminate the settlement if he is not satisfied by such discovery that the settlement is fair, reasonable and adequate. In addition, the settlement is contingent upon approval by Judge Lazzara, following notice to the members of the plaintiff class of, and a hearing on, the proposed settlement terms. The Company believes that the material allegations of the complaint are without merit, but has elected to settle the litigation to avoid the time, expense and risks associated with continuing the litigation. No assurances can be given, if the settlement is not consummated, with respect to the outcome of the litigation, and an adverse result could have a material adverse effect on the Company’s business, financial condition and results of operations.

In addition, the Company has been informed by the underwriters for the IPO that the underwriters will be seeking indemnification from the Company, BIG and/or Venture Capital Corporation for the underwriters’ legal fees and expenses incurred in the litigation, pursuant to the Underwriting Agreement between the Company, BIG, Venture Capital Corporation and the underwriters. The Company’s insurer has taken the position that it is not responsible for the payment of such monies. On August 6, 2002, the underwriters informed the Company that their legal fees and expenses in the litigation to date were approximately $110,000.

8

On November 19, 1999, the United States, on behalf of the Federal Emergency Management Agency (“FEMA”), filed a civil action against Bankers Insurance Company, a subsidiary of BIG (“BIC”), in the United States District Court for the District of Maryland stemming from FEMA’s investigation of certain cash management and claims processing practices of BIC in connection with its participation in the National Flood Insurance Program (“NFIP”). The complaint alleges, among other things, that BIC knowingly failed to report and pay interest income it had earned on NFIP funds to the United States in violation of the False Claims Act. The complaint further alleges various common law theories, including fraud, breach of contract, unjust enrichment and negligent misrepresentation. The complaint seeks civil penalties of $1.08 million and actual damages of approximately $1.1 million, as well as treble, punitive and consequential damages, costs and interest. The suit is currently stayed pending arbitration following a decision by the United States Court of Appeals for the Fourth Circuit in favor of BIC on its motion to stay the litigation pending arbitration. The government has not appealed the Fourth Circuit Court of Appeal ruling requiring arbitration and the case is stayed pending arbitration. By letter dated January 30, 2002, FEMA notified BIC that it intends to move forward with arbitration and set forth proposed procedures. BIC has further informed the Company that it intends to vigorously defend against the action, but no assurances can be given as to the outcome thereof. However, BIG has advised the Company that an adverse judgment in this action should not have a material adverse affect on the business and/or operations of BIC, although no assurances can be given in this regard.

FEMA’s investigation of certain claims processing practices of BIC in connection with its participation in the NFIP is continuing, and BIC has produced documentation in connection therewith. If the parties are either unable to reach agreement in these matters or resolve their disagreement in arbitration, the United States could amend its complaint against BIC to add additional claims under the False Claims Act and/or various common law and equitable theories relating to such matters. In the event such continuing investigation or any consequence thereof materially adversely affects the business or operations of BIC, it could result in the loss of or material decrease in the Company’s business from BIC, which would have a material adverse effect on the Company’s business, financial condition and results of operations.

The Company is involved in various other legal proceedings arising in the ordinary course of business. Management believes that the ultimate resolution of these other proceedings will not have a material adverse effect on the Company’s financial position, results of operations or liquidity, although no assurances can be given in this regard.

The Company continues to review the adequacy of a reserve it established prior to January 1, 2002 for a settlement accrual of $800,000 relating to an unaffiliated third-party customer contract that was terminated in 2000 and for which no settlement has yet been reached with this former customer. No discussions between the Company and this customer have taken place since October 2000. This item will continue to be reviewed throughout the course of this year, although no assurances can be given as to its ultimate resolution or the terms thereof.

Also, a $200,000 reserve specifically for potential billing adjustments booked during the fourth quarter of 2001 related to the new Service Agreement with BIG, effective October 1, 2001, was eliminated during the period ended June 30, 2002. This reserve was eliminated due to the fact that BIG and the Company have agreed to all potential billing adjustments booked during the fourth quarter of 2001 and all amounts owed as such, have been paid to the Company.

NOTE 5. SUBSEQUENT EVENTS

On August 14, 2002, the Company’s Board of Directors, based upon recommendation from the Audit Committee of the Board, agreed to further amend the Company's Amended Service Agreement with BIG such that the Company will provide IT support for BIG’s IT needs. In return for providing this support, the Company has agreed to hire approximately 11 staff, formerly of BIG, at an approximate annualized cost of $764,000. In return for providing these services, the Company will receive approximately $876,000 in support revenue on an annualized basis, which is a minimum amount based upon estimated IT usage for the Company's services.

The Company intends to commence shortly a cash tender off for all of the presently outstanding shares of its common stock, $0.01 per share (“Common Stock”), at a price of $3.08 per share, net to the seller in cash. The offer will be conditioned upon at least a majority of the shares of Common Stock not held by the BIG Group (as hereinafter defined) being tendered and other closing conditions typical for this type of transaction. Pursuant to the BIG Agreement, each member of the BIG Group and each of their affiliates and subsidiaries has agreed not to tender the shares of Common Stock owned by it in response to the tender offer to be made by the Company.

The offer is to be made pursuant to an Agreement and Plan of Merger, dated August 15, 2002 (the “BIG Agreement”), by and among the Company, Banker’s Insurance Group, Inc. (“BIG”), Bankers Insurance Company (“BIC”), Bankers Security Insurance Company (“BISC”) and Bankers Management Corporation (“Acquisition Corp.”). BIC is a wholly-owned subsidiary of BIG and BSIC is a jointly-owned subsidiary of BIG and BIC. BIG, BIC and BSIC constitute the “BIG Group.” Acquisition Corp. is a Florida corporation wholly-owned by BIC and BSIC and formed solely for purposes of consummating the Merger (as hereinafter defined). As of the date hereof, the members of the BIG Group collectively own approximately 68.0% of the outstanding shares of Common Stock. Pursuant to the BIG Agreement, the Company will loan BIG and/or Bankers Underwriters, Inc., a wholly-owned subsidiary of BIG (“BUI”), up to $7.0 million under a revolving line of credit (the “Line of Credit”), secured by the insurance flood book of BUI. All amounts due under the Line of Credit will be due July 31, 2003; monthly interest-only payments will be due prior to maturity. As part of this loan negotiation, BIG has assured the Company that it will keep its service fee payments to the Company current as per the terms of the Company’s service agreement with BIG.

Pursuant to the BIG Agreement, if the tender offer is consummated, Acquisition Corp. will be merged with and into the Company, the Company will continue its corporate existence and the separate corporate existence of Acquisition Corp. will cease (the “Merger”). When the Merger is consummated, any outstanding shares of Common Stock not tendered in the tender offer (other than shares held by the BIG Group or by shareholders who have properly perfected their dissenters’s rights under Florida law) will be cancelled and converted into the right to receive $3.08 in cash or any higher price per share paid in the tender offer. After the tender offer is completed but either before or after the Merger, the Company intends to deregister the Common Stock under the Securities Exchange Act of 1934, as amended, and delist the Common Stock from trading on the OTC Bulletin Board.

For Additional information regarding the proposed tender offer and related line of credit transaction, see “Item 5. Other Information”, below.

In reference to the Consolidated Amended Class Action Complaint noted in “Note 4. Commitments and Contingencies,” on August 6, 2002, the plaintiff offered to accept, in full settlement of the litigation as to all defendants, payment of $2.1 million to the putative plaintiff class. On August 14, 2002, the Company’s Board of Directors voted to accept this offer, and the issuer of the Company’s applicable Directors and Officers and Company Reimbursement insurance policy has agreed to pay this amount to the plaintiff class. The parties to the litigation currently are negotiating the terms of a Memorandum of Understanding (“MOU”), which will memorialize the settlement amount and other material settlement terms. The MOU is expected to provide that the plaintiff may conduct additional discovery to confirm the fairness and reasonableness of the settlement, and that the plaintiff may terminate the settlement if he is not satisfied by such discovery that the settlement is fair, reasonable and adequate. In addition, the settlement is contingent upon approval by Judge Lazzara, following notice to the members of the plaintiff class of, and a hearing on, the proposed settlement terms. The Company believes that the material allegations of the complaint are without merit, but has elected to settle the litigation to avoid the time, expense and risks associated with continuing the litigation. No assurances can be given, if the settlement is not consummated, with respect to the outcome of the litigation, and an adverse result could have a material adverse effect on the Company’s business, financial condition and results of operations (see “Note 4. Commitments and Contingencies” for additional information).

9

NOTE 6. LIQUIDITY AND CAPITAL RESOURCES

During 2001, the Company’s principal sources of liquidity consisted of cash on-hand, cash flows from operations, and cash proceeds from the sale of the Company’s Geotrac subsidiary in late December 2001. The Company received net cash proceeds of approximately $18.2 million as a result of the sale of its Geotrac subsidiary in late December 2001.

On April 13, 2001, the Company entered into a Commitment Letter with BIG pursuant to which BIG has agreed to advance to the Company, beginning June 1, 2001, up to $1.5 million per month as a prepayment of service fees due by BIG and its affiliates under their service agreements with the Company. Such advances are available to the Company beginning June 1, 2001 continuing through December 1, 2002 and shall be payable upon demand by the Company. Any funds advanced by BIG to the Company under the Commitment Letter shall constitute a prepayment of, and shall be credited toward, the service fees charged to BIG by the Company during the month following such advance. The Company has not drawn upon this advance in 2002 and as such, this has not been, nor does the Company expect this to be, a viable source of funds.

On June 10, 2002, the Company received payment in full of all amounts due and owing (approximately $5.0 million) from BIG, the Company’s principal customer and majority shareholder, under a short-term secured line of credit in favor of BIG in the amount of up to $5.0 million (the “Original Line of Credit”). This repayment related to a Credit and Security Agreement entered into on August 14, 2001 with BIG (together with the related loan documentation, the “Original Credit Agreement”), pursuant to which the Company established a short-term, secured line of credit in favor of BIG in the amount of up to $5.0 million (the “Original Line of Credit”).

The Company has had a year-to-date after-tax loss of $1.7 million and as such, has not had a positive cash flow from operations. The Company is substantially dependent on the business of its affiliated insurance companies under the common control of BIG as the Company derives a substantial portion of its revenue from outsourcing services provided to these affiliated companies and BIG. During the six months ended June 30, 2002, the Company has experienced a reduction in outsourcing services revenue due primarily to continued reduced premium production by BIG and anticipates that this trend will continue for the remainder of the fiscal year. Correspondingly, the Company does not expect a positive cash flow from operations for the remainder of 2002 based upon current forecasted results of operations. The Company is dependent to a large extent, on storm activity updating its outsourcing operations and to this point in 2002 has had little impact from such storms. The Company has used a conservative forecast of storm activity for the remainder of 2002.

As previously announced, the Company intends to commence shortly a cash tender offer for all of the presently outstanding shares of its common stock, $0.01 per share (“Common Stock”), at a price of $3.08 per share, net to the seller in cash. The offer will be conditioned upon at least a majority of the shares of Common Stock not held by BIG, BIC and BSIC being tendered and other closing conditions typical for this type of transaction. Pursuant to this agreement, the aforementioned and each of their affiliates and subsidiaries has agreed not to tender the shares of Common Stock owned by it in response to the tender offer to be made by the Company.

The offer is to be made pursuant to an Agreement and Plan of Merger, dated August 15, 2002 ( the “BIG Agreement”), by and among the Company, Bankers Insurance Group, Inc. (“BIG”), Bankers Insurance Company (“BIC”), Bankers Security Insurance Company (“BSIC”) and Bankers Management Corporation (“Acquisition Corp.”). BIC is a wholly-owned subsidiary of BIG and BSIC is a jointly-owned subsidiary of BIG and BIC. BIG, BIC and BSIC constitute the “BIG Group.” Acquisition Corp. is a Florida corporation wholly-owned by BIC and BSIC and formed solely for purposes of consummating the Merger (as hereinafter defined). As of the date hereof, the members of the BIG Group collectively own approximately 68.0% of the outstanding shares of Common Stock. Pursuant to the BIG Agreement, the Company will loan BIG and/or Bankers Underwriters, Inc., a wholly-owned subsidiary of BIG (“BUI”), up to $7.0 million under a revolving line of credit (the “Line of Credit”), secured by the insurance flood book of BUI. All amounts due under the Line of Credit will be due July 31, 2003; monthly interest-only payments will be due prior to maturity. Based on the foregoing, the Company expects cash on hand and cash from operations to be adequate to support its cash needs for the remainder of 2002, although no assurances can be given in this regard. The foregoing assumes BIG will to continue to make payment on its service fees under the terms of the Amendment Service Agreement, among other things. If this forecast varies from its assumptions, it would have a material adverse effect on the Company’s operations and, correspondingly, the Company’s ability to undertake the foregoing matters.

NOTE 7. SEGMENT INFORMATION

				Outsourcing
	Outsourcing			Services -			Intercompany
	Services -			Claims			Eliminations			Consolidated
	Administration			Adjusting			And Other			Totals
Three Months Ended June 30, 2001
Operating revenues-affiliated	$	12,151,878			—		$	(2,600	)	$	12,149,278
Operating revenues-unaffiliated	$	2,604,487		$	1,113,069			—		$	3,717,556
Operating income/(loss)	$	4,322,252		$	(205,446	)		—		$	4,116,806
Interest expense	$	1,189			—			—		$	1,189
Depreciation and amortization	$	720,922		$	42,904			—		$	763,826
Identifiable assets	$	44,891,236		$	5,639,464		$	(6,174,651	)	$	44,356,049
Three Months Ended June 30, 2002
Operating revenues-affiliated	$	6,885,125			—		$	6,750		$	6,891,875
Operating revenues-unaffiliated	$	1,310,830		$	1,812,447			—		$	3,123,277
Operating income/(loss)	$	(1,567,253	)	$	273,519			—		$	(1,293,734	)
Depreciation and amortization	$	708,829		$	10,513			—		$	719,342
Identifiable assets	$	37,107,756		$	6,283,844		$	(5,462,601	)	$	37,928,999
Six Months Ended June 30, 2001
Operating revenues-affiliated	$	21,733,841			—		$	(2,600	)	$	21,731,241
Operating revenues-unaffiliated	$	3,521,874		$	1,415,216			—		$	4,937,090
Operating income/(loss)	$	4,078,664		$	(416,340	)		—		$	3,662,324
Interest expense	$	3,255			—			—		$	3,255
Depreciation and amortization	$	1,454,622		$	84,862			—		$	1,539,484
Identifiable assets	$	44,891,236		$	5,639,464		$	(6,174,651	)	$	44,356,049
Six Months Ended June 30, 2002
Operating revenues-affiliated	$	13,982,108			—			—		$	13,982,108
Operating revenues-unaffiliated	$	2,434,355		$	2,066,701			—		$	4,501,056
Operating income/(loss)	$	(3,022,232	)	$	34,237			—		$	(2,987,995	)
Depreciation and amortization	$	1,347,188		$	21,118			—		$	1,368,306
Identifiable assets	$	37,107,756		$	6,283,844		$	(5,462,601	)	$	37,928,999

Outsourcing Services — Administration. Identifiable assets at June 30, 2001 include net assets of discontinued operations of $22,101,780.

Outsourcing Services — Claims Adjusting. Identifiable assets at June 30, 2002 and 2001 include goodwill, net of $2,250,409 and $2,316,597.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis should be read in conjunction with the Company’s consolidated financial statements (unaudited) and the notes thereto included in “Item 1. Financial Statements” above.

RESULTS OF OPERATIONS

The following table sets forth, for the periods indicated, certain selected operating results of the Company as a percentage of total revenues:

			Three Months Ended June 30,						Six Months Ended June 30,
			2001			2002			2001			2002
REVENUES
	Outsourcing services			100.0	%		100.0	%		100.0	%		100.0	%
		Total revenues		100.0			100.0			100.0			100.0
EXPENSES
	Cost of outsourcing services			57.5			84.7			65.8			87.3
	Selling, general and administrative			9.8			19.2			12.3			19.8
	Management services from Parent			1.9			1.8			2.4			1.7
	Depreciation and amortization			4.8			7.2			5.8			7.4
		Total expenses		74.0			112.9			86.3			116.2
Operating income/(loss)				26.0			(12.9	)		13.7			(16.2	)
Interest income, net				0.2			1.3			0.3			1.5
Income before income taxes and discontinued operations				26.2			(11.6	)		14.0			(14.7	)
Provision/(benefit) for income taxes				10.0			(4.3	)		5.4			(5.5	)
Income/(loss) before discontinued operations				16.2			(7.3	)		8.6			(9.2	)
Income/(loss) from discontinued operations				5.8			—			5.0			—
Net income/(loss)				22.0	%		(7.3	)%		13.6	%		(9.2	)%

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OVERVIEW

During the six months ended June 30, 2002, the Company continued to experience a reduction in outsourcing services revenue, and related losses on an after-tax basis, due primarily to continued reduced premium production by BIG, the Company’s principal customer. The Company anticipates that this trend will continue for the remainder of the fiscal year and, consequently, is currently focused on implementing cost reduction measures and eliminating support or service expenses associated with the provision of services to BIG. Effective July 1, 2002, the Company amended its existing Administration Services Agreement, effective October 1, 2001, with BIG (the “Service Agreement” and, as amended, the “Amended Service Agreement”), such that, as of July 1, 2002, the Company no longer provides policy administration or claims processing services for BIG’s personal (i.e., automobile and homeowners) insurance lines of business or claims processing for BIG’s commercial insurance lines of business. However, the Company will continue to provide policy administration, claims administration and data processing services in connection with BIG’s flood insurance line of business, with no change in the existing fee structure. In addition, pursuant to the Amended Service Agreement, the Company will continue to provide BIG with IT hosting and support services for a fixed monthly fee. The Company will also continue to provide BIG with various other back-office support services, including cash office processing, records management, policy assembly, and print and mail distribution services, in connection with all of BIG’s personal and commercial insurance lines of business. For the foregoing services, BIG pays the Company a monthly fee based upon a percentage of the direct written premium for each line of business (except if provided in connection with BIG’s flood insurance line, where no additional fee will be imposed over that mentioned above). With respect to the service fees payable in connection with BIG’s personal (i.e., automobile and homeowners) and commercial insurance lines of business, the applicable percentage of direct written premium being charged has been reduced to reflect the reduction in the services being provided in connection with such lines of business. If the Amended Service Agreement had been in effect as of January 1, 2002, the Company’s affiliated outsourcing services revenues for the six months ended June 30, 2002, which were $14.0 million on an actual basis, would have been $6.9 million.

Also effective July 1, 2002, in connection with the foregoing modifications to the Service Agreement, the Company terminated 98 employees, or approximately 28% of its total workforce. Of these employees, 81 worked in claims processing and 17 worked in policy administration. The Company expects to realize savings of approximately $5.1 million in annual payroll costs and related expenses as a result of this transition and reduction in its workforce. Moreover, as previously reported, the Company has recently taken other actions designed to improve the Company’s cost structure, including terminating two facility subleases with BIG and its affiliates effective as of June 30, 2002 and August 28, 2002, respectively. The Company expects to realize cost savings of approximately $725,000 annually as a result of the termination of these two subleases.

Effective August 12, 2002, the Company amended the Amended Service Agreement. Pursuant to this amendment, the Company will provide additional IT support services to BIG. In return for providing these services, the Company will receive not less than approximately $876,000 in fees from BIG, which is a minimum amount based upon estimated IT usage of the Company’s services. In addition, the Company has agreed to hire eleven persons previously employed by BIG, at an anticipated annualized cost of approximately $764,000. The foregoing modifications to the Amended Service Agreement, as well as the corresponding workforce additions, were approved by the Audit Committee of the Board of Directors of the Company on August 14, 2002 (see “Item 5. Other Information”).

Management of the Company believes that the foregoing actions, including the implementation of the Amended Service Agreement, are necessary to ensure the Company’s long-term financial viability in light of the anticipated continued downward trend in the amount of direct written premium generated by BIG’s personal (i.e., automobile and homeowners) and commercial insurance lines of business. No assurances can be given, however, as to the future financial performance of the Company.

COMPARISON OF THE THREE MONTHS ENDED JUNE 30, 2001 AND 2002

Continuing Operations

Outsourcing Services Revenues. Outsourcing services revenues decreased $5.9 million, or 37.1%, to $10.0 million for the three months ended June 30, 2002 from $15.9 million for the corresponding period in 2001. The decrease during this period was primarily attributable to decreased claims processing revenue resulting from the absence of tropical storm activity as compared with 2001, coupled with the continued decrease in affiliated direct written premium (“DWP”) volumes related to BIG’s automobile, homeowners, worker’s compensation, and commercial lines. Tropical Storm Allison, which storm occurred in June 2001, generated $3.1 million in revenue for the quarter ended June 30, 2001, whereas during the corresponding period of 2002 no major storm activity occurred. Affiliated homeowners DWP volumes decreased 58.7% and affiliated automobile DWP volumes decreased 71.0% during the second quarter of 2002 as compared to the corresponding period of 2001. The foregoing decreases were partially offset by a nominal increase in unaffiliated revenue earned by the Company’s Colonial Claims subsidiary in May 2002 arising from higher than expected claims activity as a result of hailstorms in Kentucky. The Company expects affiliated homeowners DWP volumes to decrease further as a result of the sale of BIG’s Florida wind-inclusive policies to an unaffiliated third party effective February 2002. Affiliated automobile DWP volumes are expected to decline as well due to changes in underwriting guidelines effective this year.

11

As described more fully above under “— Overview,” effective July 1, 2002, the Company amended the Service Agreement such that the Company no longer provides policy administration or claims processing services for BIG’s personal (i.e., automobile and homeowners) insurance lines of business or claims processing for BIG’s commercial insurance lines of business.

Cost of Outsourcing Services. Cost of outsourcing services decreased $647,000, or 7.1%, to $8.5 million for the three months ended June 30, 2002 from $9.1 million for the corresponding period in 2001. As a percentage of outsourcing services revenues, cost of outsourcing services increased to 84.7% for the three month period ended June 30, 2002 from 57.5% for the corresponding period in 2001. The decrease in the dollar amount of cost of outsourcing services was due primarily to: (i) a 18.0% overall decrease in salary expense due to reductions in IT, Claims, Policy Administration, and Cash Office staff; (ii) a decrease in telephone expenses due to a change of service provider effective in October 2001; and (iii) a decrease in postage expense due primarily to lower auto and homeowner volumes. Additionally, expenses decreased due to a credit for telephone expenses for the quarter due to a more favorable phone services contract with the Company’s carrier and, in connection with the implementation of the Amended Service Agreement, back to BIG (see “—Overview” above), the Company agreed to pay BIG approximately $301,000 to cover estimated processing costs for claims to be processed. Although contractually the Company was not obligated to pay for these claims under the terms of its agreement with BIG, the payment was made because management believed that this payment and transfer of claims to BIG was in the best interests of the Company. This decrease was partially offset by increased contract labor expenses relating primarily to claims administration, and increased outside adjustor expense related to the aforementioned increased activity incurred by the Company’s Colonial Claims subsidiary.

Selling, General and Administrative Expense. Selling, general and administrative expenses increased $364,000, or 22.8%, to $1.9 million for the three months ended June 30, 2002 from $1.6 million for the corresponding period in 2001. This increase consisted primarily of increased spending of $554,000 on director fees and professional fees arising from ongoing services as directed by the Special Committee of the Board of Directors, partially offset by decreased administrative salary expense and decreased office supply spending of approximately $222,000, in addition to the aforementioned $200,000 reserve elimination specifically for potential billing adjustments booked during the fourth quarter of 2001 related to the new Service Agreement with BIG, effective October 1, 2001. This reserve was eliminated due to the fact that BIG and the Company have agreed to all potential billing adjustments booked during the fourth quarter of 2001 and all amounts owed as such, have been paid to the Company.

Management Services from Parent. Management Services from Parent decreased $114,000, or 38.3%, to $184,000 for the three months ended June 30, 2002 from $298,000 for the corresponding period in 2001. The decrease was entirely related to reduced office lease expense under the new sublease agreement with Bankers Financial Corporation that took effect in late December 2001.

Interest Income. Interest Income increased 225% to $130,000 for the three months ended June 30, 2002 from $40,000 for the corresponding period in 2001. The increase reflects investment income earned on the net cash proceeds from the sale of Geotrac in late December 2001, coupled with interest earned on the Company’s previous line of credit in favor of BIG (see “—Liquidity and Capital Resources” below).

Provision/(Benefit) for Income Taxes. The Company’s effective income tax/(benefit) rates were (37.2%) and 38.1% for the three months ended June 30, 2002 and 2001, respectively.

For additional information on the reconciliation of the Company’s effective income tax rate to the federal statutory income tax rate, see “Note 10 — Income Taxes” in the Notes to the Consolidated Financial Statements of the Company for the year ended December 31, 2001, included in the Company’s Form 10-K filed with the Securities and Exchange Commission on April 1, 2002.

Discontinued Operations

As a consequence of the sale of Geotrac on December 28, 2001, net income from discontinued operations was $0 for the three months ended June 30, 2002 as compared to $914,117 for the corresponding period in 2001. For selected financial information on discontinued operations, see “Note 3. Discontinued Operations” in the Notes to the Consolidated Financial Statements (unaudited) of the Company included in “Item 1. Financial Statements” above.

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COMPARISON OF THE SIX MONTHS ENDED JUNE 30, 2001 AND 2002

Continuing Operations

Outsourcing Services Revenues. Outsourcing services revenues decreased $8.2 million, or 30.7%, to $18.5 million for the six months ended June 30, 2002 from $26.7 million for the corresponding period in 2001. The decrease during this period was primarily attributable to decreased claims processing revenue resulting from the absence of tropical storm activity as compared with 2001, coupled with the continued decrease in affiliated direct written premium (“DWP”) volumes related to BIG’s automobile, homeowners, worker’s compensation, and commercial lines. Tropical Storm Allison, which storm occurred in June 2001, generated $3.1 million in revenue for the six-month period ended June 30, 2001, whereas during the corresponding period of 2002 no major storm activity occurred. Specifically, affiliated homeowners DWP volumes decreased 42.7% and affiliated automobile DWP volumes decreased 47.0% during the first six months of 2002 as compared to the corresponding period of 2001. The foregoing decreases were partially offset by a nominal increase in unaffiliated revenue earned by the Company’s Colonial Claims subsidiary in May 2002 resulting from higher than expected claims activity as a result of hailstorms in Kentucky. The Company expects affiliated homeowners DWP volumes to decrease further as a result of the sale of BIG’s Florida wind-inclusive policies to an unaffiliated third party effective February 2002. Affiliated automobile DWP volumes are expected to decline as well due to changes in underwriting guidelines effective this year.

As described more fully above under “—Overview”, effective July 1, 2002, the Company amended the Service Agreement such that the Company no longer provides policy administration or claims processing services for BIG’s personal (i.e., automobile and homeowners) insurance lines of business or claims processing for BIG’s commercial insurance lines of business (see “Item 5. Other Information”).

Cost of Outsourcing Services. Cost of outsourcing services decreased $1.4 million, or 8.0%, to $16.1 million for the six months ended June 30, 2002 from $17.5 million for the corresponding period in 2001. As a percentage of outsourcing services revenues, cost of outsourcing services increased to 87.3% for the six months ended June 30, 2002 from 65.7% for the corresponding period in 2001. The decrease in the dollar amount of cost of outsourcing services was due primarily to: (i) a 15.0% overall decrease in salary expense due to a 50.0% reduction in IT staff as well as reduced Claims and Cash Office staff; (ii) a decrease in telephone expenses due to a change of service provider effective in October 2001; (iii) a decrease in postage expense due primarily to lower auto and homeowner volumes; and (iv) decreased office supply expense due to tighter purchasing controls. This decrease was partially offset by an increase in flood zone determination expense arising from higher flood DWP volumes, increased contract labor expenses relating primarily to claims administration, and increased outside adjustor expense related to the aforementioned increased activity incurred by the Company’s Colonial Claims subsidiary.

Selling, General and Administrative Expense. Selling, general and administrative expenses increased $400,000, or 12.1%, to $3.7 million for the six months ended June 30, 2002 from $3.3 million for the corresponding period in 2001. This increase was attributable primarily to increased director fees and professional fees (primarily legal and investment banking fees) arising from ongoing services as directed by the Special Committee of the Board of Directors. This increase was offset by decreased administrative salary expense of approximately $201,000.

Management Services from Parent. Management Services from Parent decreased $345,000, or 52.9%, to $307,000 for the six months ended June 30, 2002 from $652,000 for the corresponding period in 2001. The decrease was primarily related to reduced office lease expense under the new sublease agreement with Bankers Financial Corporation that took effect in late December 2001. Additionally, the reduction reflects the assumption of administrative services, including human resources and legal, which were previously provided to the Company by BIG.

Interest Income. Interest Income increased 234% to $274,000 for the six months ended June 30, 2002 from $82,000 for the corresponding period in 2001. The increase reflects investment income earned on the net cash proceeds from the sale of Geotrac in late December 2001, coupled with interest earned on the Company’s previous line of credit in favor of BIG (see “—Liquidity and Capital Resources” below).

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Provision/(Benefit) for Income Taxes. The Company’s effective income tax/(benefit) rates were (37.3%) and 38.6% for the six months ended June 30, 2002 and 2001, respectively.

For additional information on the reconciliation of the Company’s effective income tax rate to the federal statutory income tax rate, see “Note 10 — Income Taxes” in the Notes to the Consolidated Financial Statements of the Company for the year ended December 31, 2001, included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2001, as filed with the Securities and Exchange Commission on April 1, 2002.

Discontinued Operations

As a consequence of the sale of Geotrac on December 28, 2001, net income from discontinued operations was $0 for the six months ended June 30, 2002 as compared to $1,343,243 for the corresponding period in 2001. For selected financial information on discontinued operations, see “Note 3. Discontinued Operations” in the Notes to the Consolidated Financial Statements (unaudited) of the Company included in “Item 1. Financial Statements” above.

NEW ACCOUNTING POLICIES

Effective as of January 1, 2002, the Company adopted Statement of Financial Accounting Standards (SFAS) 142, Goodwill and Intangible Assets, and 144, Accounting for the Impairment or Disposal of Long Lived Assets. The Company retained an independent third-party investment banking firm to conduct an analysis of its’ goodwill valuation at January 1, 2002. Based on this valuation the adoption of the new standards had no impact on the Company’s results of operations or financial condition for the six-month period ended June 30, 2002 except that goodwill is no longer amortized.

See Note 2 of the Notes to Consolidated Financial Statements for further information.

LIQUIDITY AND CAPITAL RESOURCES

During 2001, the Company’s principal sources of liquidity consisted of cash on-hand, cash flows from operations, and cash proceeds from the sale of the Company’s Geotrac subsidiary in late December 2001. The Company received net cash proceeds of approximately $18.2 million as a result of the sale of its Geotrac subsidiary in late December 2001. Prior to the consummation of the sale of Geotrac, the Company was party to a Corporate Governance Agreement, dated July 31, 1998, with Geotrac and Daniel J. White (“Mr. White”), setting forth certain terms and conditions pertaining to the operation of Geotrac. Pursuant to this Corporate Governance Agreement, Mr. White could impede the Company’s ability to access excess cash balances retained by its Geotrac subsidiary.

On April 13, 2001, the Company entered into a Commitment Letter with BIG pursuant to which BIG has agreed to advance to the Company, beginning June 1, 2001, up to $1.5 million per month as a prepayment of service fees due by BIG and its affiliates under their service agreements with the Company. Such advances are available to the Company beginning June 1, 2001 continuing through December 1, 2002 and shall be payable upon demand by the Company. Any funds advanced by BIG to the Company under the Commitment Letter shall constitute a prepayment of, and shall be credited toward, the service fees charged to BIG by the Company during the month following such advance. The Company has not drawn upon this advance in 2002 and as such, this has not been, nor does the Company expect this to be, a viable source of funds.

On June 10, 2002, the Company received payment in full of all amounts due and owing (approximately $5.0 million) from BIG, the Company’s principal customer and majority shareholder, under a short-term secured line of credit in favor of BIG in the amount of up to $5.0 million (the “Original Line of Credit”). This repayment related to a Credit and Security Agreement entered into on August 14, 2001 with BIG (together with the related loan documentation, the “Original Credit Agreement”), pursuant to which the Company established a short-term, secured line of credit in favor of BIG in the amount of up to $5.0 million (the “Original Line of Credit”). The principal purpose of the Original Line of Credit was to assist BIG with certain short-term working capital needs. The Original Credit and Security Agreement was amended on March 14, 2002 to extend the Original Line of Credit until May 31, 2002.

The Company has had a year-to-date after-tax loss of $1.7 million and as such, has not had a positive cash flow from operations. The Company is substantially dependent on the business of its affiliated insurance companies under the common control of BIG as the Company derives a substantial portion of its revenue from outsourcing services provided to these affiliated companies and BIG. During the six months ended June 30, 2002, the Company has experienced a reduction in outsourcing services revenue due primarily to continued reduced premium production by BIG and anticipates that this trend will continue for the remainder of the fiscal year. Correspondingly, the Company does not expect a positive cash flow from operations for the remainder of 2002 based upon current forecasted results of operations. The Company is dependent to a large extent, on storm activity updating its outsourcing operations and to this point in 2002 has had little impact from such storms. The Company has used a conservative forecast of storm activity for the remainder of 2002.

As previously announced, the Company intends to commence shortly a cash tender offer for all of the presently outstanding shares of its common stock, $0.01 per share (“Common Stock”), at a price of $3.08 per share, net to the seller in cash. The offer will be conditioned upon at least a majority of the shares of Common Stock not held by the BIG Group (as hereinafter defined) being tendered and other closing conditions typical for this type of transaction. Pursuant to the BIG Agreement, each member of the BIG Group and each of their affiliates and subsidiaries has agreed not to tender the shares of Common Stock owned by it in response to the tender offer to be made by the Company.

The offer is to be made pursuant to an Agreement and Plan of Merger, dated August 15, 2002 ( the “BIG Agreement”), by and among the Company, Bankers Insurance Group, Inc. (“BIG”), Bankers Insurance Company (“BIC”), Bankers Security Insurance Company (“BSIC”) and Bankers Management Corporation (“Acquisition Corp.”). BIC is a wholly-owned subsidiary of BIG and BSIC is a jointly-owned subsidiary of BIG and BIC. BIG, BIC and BSIC constitute the “BIG Group.” Acquisition Corp. is a Florida corporation wholly-owned by BIC and BSIC and formed solely for purposes of consummating the Merger (as hereinafter defined). As of the date hereof, the members of the BIG Group collectively own approximately 68.0% of the outstanding shares of Common Stock. Pursuant to the BIG Agreement, the Company will loan BIG and/or Bankers Underwriters, Inc., a wholly-owned subsidiary of BIG (“BUI”), up to $7.0 million under a revolving line of credit (the “Line of Credit”), secured by the insurance flood book of BUI. All amounts due under the Line of Credit will be due July 31, 2003; monthly interest-only payments will be due prior to maturity.

Based on the foregoing, the Company expects cash on hand and cash from operations to be adequate to support its cash needs for the remainder of 2002, although no assurances can be given in this regard. The foregoing assumes BIG will to continue to make payment on its service fees under the terms of the Amendment Service Agreement, among other things. If this forecast varies from its assumptions, it would have a material adverse effect on the Company's operations and, correspondingly, the Company's ability to undertake the foregoing matters.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company has not entered into any transactions using derivative financial instruments or derivative commodity instruments and believes that its exposure to market risk associated with other financial instruments (such as variable rate debt) is not material.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

On September 28, 2000, October 25, 2000 and October 30, 2000, three alleged shareholders of the Company filed three nearly identical lawsuits in the United States District Court for the Middle District of Florida, each on behalf of a putative class of all persons who purchased shares of the Company’s Common Stock pursuant and/or traceable to the registration statement for the Company’s February 1999 initial public offering (the “IPO”). The lawsuits were consolidated on December 1, 2000, and the consolidated action is proceeding under Case No. 8:00-CV-2013-T-26MAP. The plaintiff’s Consolidated Amended Class Action Complaint, filed February 7, 2001, names as defendant the following parties: the Company; BIG, Venture Capital Corporation, a selling shareholder in the IPO; the five insider directors of the Company at the time of the IPO; and Raymond James & Associates, Inc. and Keefe, Bruyette & Woods, Inc., the underwriters for the IPO. The complaint alleges, among other things, that the defendants violated Sections 11, 12(a)(2) and 15 of the Securities Act of 1933, as amended, by making certain false and misleading statements in the roadshow presentations, registration statement and prospectus relating to the IPO. More specifically, the complaint alleges that, in connection with the IPO, the defendants made various material misrepresentations and/or omissions relating to: (i) the Company’s ability to integrate Geotrac’s flood zone determination business with the Company’s own flood zone determination business and with its insurance outsourcing services business; (ii) actual and anticipated synergies between the Company’s flood zone determination and outsourcing services business lines; and (iii) the Company’s use of the IPO proceeds. The complaint seeks unspecified damages, including interest, and equitable relief, including a rescission remedy. On March 26, 2001, the Company, BIG and the five inside director defendants filed a motion to dismiss the plaintiffs’ complaint for, among other things, failure to allege material misstatements and/or omissions in the roadshow presentations, registration statement and/or prospectus relating to the IPO. On July 11, 2001, U.S. District Judge Richard A. Lazzara denied all of the defendants’ motions to dismiss the complaint.

The case has been set for trial during the trial term commencing May 5, 2003. On August 6, 2002, the plaintiff offered to accept, in full settlement of the litigation as to all defendants, payment of $2.1 million to the putative plaintiff class. On August 14, 2002, the Company’s Board of Directors voted to accept this offer, and the issuer of the Company’s applicable Directors and Officers and Company Reimbursement insurance policy has agreed to pay this amount to the plaintiff class. The parties to the litigation currently are negotiating the terms of a Memorandum of Understanding (“MOU”), which will memorialize the settlement amount and other material settlement terms. The MOU is expected to provide that the plaintiff may conduct additional discovery to confirm the fairness and reasonableness of the settlement, and that the plaintiff may terminate the settlement if he is not satisfied by such discovery that the settlement is fair, reasonable and adequate. In addition, the settlement is contingent upon approval by Judge Lazzara, following notice to the members of the plaintiff class of, and a hearing on, the proposed settlement terms. The Company believes that the material allegations of the complaint are without merit, but has elected to settle the litigation to avoid the time, expense and risks associated with continuing the litigation. No assurances can be given, if the settlement is not consummated, with respect to the outcome of the litigation, and an adverse result could have a material adverse effect on the Company’s business, financial condition and results of operations.

In addition, the Company has been informed by the underwriters for the IPO that the underwriters will be seeking indemnification from the Company, BIG and/or Venture Capital Corporation for the underwriters’ legal fees and expenses incurred in the litigation, pursuant to the Underwriting Agreement between the Company, BIG, Venture Capital Corporation and the underwriters. The Company’s insurer has taken the position that it is not responsible for the payment of such monies. On August 6, 2002, the underwriters informed the Company that their legal fees and expenses in the litigation to date were approximately $110,000.

Except as set forth above, there have been no material changes to the disclosures set forth under the caption “Item 3. Legal Proceedings” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2001, as filed with the Securities and Exchange Commission on April 1, 2002.

ITEM 5. OTHER INFORMATION

As previously reported, on May 7, 2002, the Company reduced its workforce by eliminating 45 positions, or approximately 10.7% of its total workforce. These reductions are expected to result in a reduction of approximately $1.6 million in annualized payroll costs and are expected to have a positive impact on the Company’s cash flow and pre-tax earnings. These staffing reductions impacted each of the Company’s principal departments, although the primary areas affected were policy administration and claims processing. These reductions were undertaken in an effort to help offset the loss of affiliated outsourcing services revenue resulting primarily from reductions in the amounts of homeowners, worker’s compensation and, to a lesser extent, automobile outsourcing services provided to BIG.

As also previously reported, effective July 1, 2002, the Company amended its existing Administration Services Agreement, effective October 1, 2001, with BIG (the “Service Agreement” and, as amended, the “Amended Service Agreement”), such that, as of July 1, 2002, the Company no longer provides policy administration or claims processing services for BIG’s personal (i.e., automobile and homeowners) insurance lines of business or claims processing for BIG’s commercial insurance lines of business. For the foregoing services, BIG pays the Company a monthly fee based upon a percentage of the direct written premium for each line of business (except if provided in connection with BIG’s flood insurance line, where no additional fee will be imposed over that mentioned above). With respect to the service fees payable in connection with BIG’s personal (i.e., automobile and homeowners) and commercial insurance lines of business, the applicable percentage of direct written premium being charged has been reduced to reflect the reduction in the services being provided in connection with such lines of business. If the Amended Service Agreement had been in effect as of January 1, 2002, the Company’s affiliated outsourcing services revenues for the six months ended June 30, 2002, which were $14.0 million on an actual basis, would have been $6.9 million. In connection with the implementation of the Amended Service Agreement, BIG agreed to assume all pending claims relating to the lines of business being serviced on a reduced basis by the Company. In exchange, the Company agreed to pay BIG $300,000 to cover the estimated processing costs for these claims.

Also effective July 1, 2002, in connection with the foregoing modifications to the Service Agreement, the Company terminated 98 employees, or approximately 28% of its total workforce. Of these employees, 81 worked in claims processing and 17 worked in policy administration. The Company expects to realize savings of approximately $5.1 million in annual payroll costs and related expenses as a result of this transition and reduction in its workforce.

However, the Company continues to provide policy administration, claims administration and data processing services in connection with BIG’s flood insurance line of business, with no change in the existing fee structure. In addition, pursuant to the Amended Service Agreement, the Company continues to provide BIG with IT hosting and support services for a fixed monthly fee. The Company also continues to provide BIG with various other back-office support services, including cash office processing, records management, policy assembly, and print and mail distribution services, in connection with all of BIG’s personal and commercial insurance lines of business. For the foregoing services, BIG pays the Company a monthly fee based upon a percentage of the direct written premium for each line of business (except if provided in connection with BIG’s flood insurance line, where no additional fee will be imposed over that mentioned above). With respect to the service fees payable in connection with BIG’s personal (i.e., automobile and homeowners) and commercial insurance lines of business, the applicable percentage of direct written premium being charged has been reduced to reflect the reduction in the services being provided in connection with such lines of business. If the Amended Service Agreement had been in effect as of January 1, 2002, the Company’s affiliated outsourcing services revenues for the six months ended June 30, 2002, which were $14.0 million on an actual basis, would have been $6.9 million. Moreover, as previously reported, the Company has recently taken other actions designed to improve the Company’s cost structure, including terminating two facility subleases with BIG and its affiliates effective as of June 30, 2002 and August 28, 2002, respectively. The Company expects to realize cost savings of approximately $725,000 annually as a result of the termination of these two subleases.

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The modifications to the Company’s existing Service Agreement with BIG, as well as the corresponding reduction in the Company’s workforce, were approved by the Audit Committee of the Board of Directors of the Company on June 26, 2002.

Effective August 12, 2002, the Company amended the Amended Service Agreement with BIG. Pursuant to this amendment, the Company will provide additional IT support services to BIG. In return for providing these services, the Company will receive not less than approximately $876,000 annually in fees from BIG, which is a minimum amount based upon the estimated IT usage by BIG of the Company’s services. In addition, the Company has agreed to hire eleven persons previously employed by BIG, at an anticipated annualized cost of approximately $764,000. The foregoing modifications to the Amended Service Agreement, as well as the corresponding workforce additions, were approved by the Audit Committee of the Board of Directors of the Company on August 14, 2002.

The foregoing description of the Amended Service Agreement is qualified in its entirety by reference to (1) the Insurance Administration Services Agreement previously filed as Exhibit 10.71 to the Annual Report on Form 10-K/A for the year ended December 31, 2001 filed by the Company on April 9, 2002, (2) the First Addendum to Insurance Administration Services Agreement, dated July 1, 2002, previously filed as Exhibit 10.1 to the Current Report on Form 8-K filed by the Company on July 10, 2002, and (3) the Second Amendment to Insurance Administration Services Agreement, effective August 12, 2002, included as Exhibit 10.3 to this Quarterly Report on Form 10-Q, and incorporated by reference herein.

Pursuant to the December 2001 sale of Geotrac, the Company entered into a Flood Zone Determination Service Agreement pursuant to which Geotrac will provide the Company with flood zone determination services for up to ten years at pricing management of the Company currently considers to be favorable. The parties changed the start date for when the Agreement’s new pricing goes into effect to May 17, 2002. The fair value of $2,189,090 assigned to this service agreement will be amortized over the 10-year contract period commencing May 17, 2002 using a method that approximates the Company’s projected annual requirements of flood zone determinations, adjusted for actual usage. The amortization expense related to this Flood Zone Determination Service Agreement for the second quarter of 2002 is approximately $101,000.

As previously announced, the Company intends to commence shortly a cash tender offer for all of the presently outstanding shares of its common stock, $0.01 per share (“Common Stock”), at a price of $3.08 per share, net to the seller in cash. The offer will be conditioned upon at least a majority of the shares of Common Stock not held by the BIG Group (as hereinafter defined) being tendered and other closing conditions typical for this type of transaction. Pursuant to the BIG Agreement, each member of the BIG Group and each of their affiliates and subsidiaries has agreed not to tender the shares of Common Stock owned by it in response to the tender offer to be made by the Company.

The offer is to be made pursuant to an Agreement and Plan of Merger, dated August 15, 2002 (the “BIG Agreement”), by and among the Company, Bankers Insurance Group, Inc. (“BIG”), Bankers Insurance Company (“BIC”), Bankers Security Insurance Company (“BSIC”) and Bankers Management Corporation (“Acquisition Corp.”). BIC is a wholly-owned subsidiary of BIG and BSIC is a jointly-owned subsidiary of BIG and BIC. BIG, BIC and BSIC constitute the “BIG Group.” Acquisition Corp. is a Florida corporation wholly-owned by BIC and BSIC and formed solely for purposes of consummating the Merger (as hereinafter defined). As of the date hereof, the members of the BIG Group collectively own approximately 68.0% of the outstanding shares of Common Stock. Pursuant to the BIG Agreement, the Company will loan BIG and/or Bankers Underwriters, Inc., a wholly-owned subsidiary of BIG (“BUI”), up to $7.0 million under a revolving line of credit (the “Line of Credit”), secured by the insurance flood book of BUI. All amounts due under the Line of Credit will be due July 31, 2003; monthly interest-only payments will be due prior to maturity.

Pursuant to the BIG Agreement, if the tender offer is consummated, Acquisition Corp. will be merged with and into the Company, the Company will continue its corporate existence and the separate corporate existence of Acquisition Corp. will cease (the “Merger”). When the Merger is consummated, any outstanding shares of Common Stock not tendered in the tender offer (other than shares held by the BIG Group or by shareholders who have properly perfected their dissenter’s rights under Florida law) will be cancelled and converted into the right to receive $3.08 in cash or any higher price per share paid in the tender offer. After the tender offer is completed but either before or after the Merger, the Company intends to deregister the Common Stock under the Securities Exchange Act of 1934, as amended, and delist the Common Stock from trading on the OTC Bulletin Board.

The Company has 12,276,063 shares of Common Stock outstanding. The members of the BIG Group currently own 8,349,884 shares of Common Stock, representing approximately 68.0% of the outstanding shares of Common Stock. The funding of the transaction is expected to come from cash currently held by the Company (see “Item 5. Other Information”).

Based upon the review and recommendation of the Special Committee comprised of the Company’s independent directors, the Company’s Board of Directors approved the BIG Agreement, the tender offer and the Merger. The Special Committee is comprised of John A. Grant, William D. Hussey, John S. McMullen (Chair), and E. Ray Solomon. (Mr. Hussey was not in attendance, and did not vote, at either the Special Committee meeting or the Board of Directors meeting at which such actions were taken.) The Special Committee’s recommendation and the Board’s approval are based on a number of factors, including the opinion of Houlihan Lokey Howard & Zukin Financial Advisors, Inc., the financial advisor to the Special Committee, that the $3.08 per share consideration is fair from a financial point of view to the Company’s shareholders (other than the members of the BIG Group and their affiliates).

The foregoing discussion of the BIG Agreement is qualified in its entirety by reference to the complete copy of the BIG Agreement included as Exhibit 2.1 to this Quarterly Report and incorporated herein by reference.

The tender offer will commence shortly and will be made only by an offer to purchase and other offering documents, copies of which will be filed with the Securities and Exchange Commission and mailed to Company shareholders. Investors and shareholders are strongly advised to read the tender offer documents when they become available, because they will contain important information about the Company’s present and future operations. Investors and security holders may obtain a free copy of these documents (when available) and other documents filed by the Company at the SEC’s web site at http://www.sec.gov. The tender offer documents and related materials may be obtained for free by directing such requests to the information agent to be designated for the tender offer.

As part of the BIG Agreement, the Company has agreed to lend up to $7.0 million to BIG and/or BUI pursuant to a Credit and Security Agreement (the “Credit Agreement”) and a related Revolving Line of Credit Master Promissory Note (the “Note”). Pursuant to the Credit Agreement and the Note, the Company has established the Line of Credit in favor of BIG and BUI in the amount of up to $7.0 million. As of the date hereof, the principal amount outstanding under the Line of Credit is $3.6 million, although BIG has indicated to the Company that it will draw additional amounts, as needed, shortly after this filing. Amounts borrowed under the Line of Credit are to be used by BIG exclusively (i) to payoff a $5,000,000 loan and other indebtedness outstanding from BIG to AMS Staff Leasing and (ii) for other working capital needs of BIG, as determined from time to time by BIG. As part of this loan negotiation, BIG has assured the Company that it will keep its service fee payments to the Company current as per the terms of the Company’s service agreement with BIG.

Pursuant to the Credit Agreement and the Note, interest is payable monthly on amounts outstanding under the Line of Credit at an annual rate equal to 10.75%. The Note further provides that the Line of Credit will expire on July 31, 2003, unless repaid in full prior to such time or otherwise terminated pursuant to the terms of the Note.

The Line of Credit is secured by a first lien security interest in all accounts and contract rights of BUI, with insurance agents (including but not limited to general agents with respect to the sale of federal flood insurance) (collectively, the “Flood Book”). BUI currently is a Florida general insurance agent for First Community Insurance Company, a New York insurance company licensed in all fifty states, and for BIC, which is a Florida insurance company licensed in approximately 30 states and a wholly-owned subsidiary of BIG. As of the date of this Quarterly Report, the Company believes the fair market value of the Flood Book exceeds the aggregate principal amount of the Line of Credit.

The foregoing description of the Line of Credit is qualified in its entirety by reference to the Credit Agreement, the Note, the Collateral Assignment of Flood Book and the Further Assurances and Compliance Agreement included as Exhibits 10.4 through 10.7 to this Quarterly Report and incorporated herein by reference.

As previously reported, on January 30, 2002, the Board of Directors of the Company appointed a Special Committee, consisting of the Company’s five independent directors, to evaluate possible strategic alternatives for the Company. On April 24, 2002, the Board of Directors approved the following compensation for members of the Special Committee, retroactive to the formation of the Special Committee in January 2002. Each member is paid a flat fee of $1,000 per meeting attended. In addition, the Chairman of the Committee, John S. McMullen, was to be paid a monthly fee of $5,000 through June 2002, at which time the Board was to reevaluate this fee. The Board reviewed this matter as such and voted to continue Mr. McMullen’s fee payments until such time that the Special Committee is eliminated. Although no assurances can be given as to the Special Committee’s duration, it is expected that this Committee will be through with its business, and therefore eliminated, on or about September 30, 2002.

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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

     a) Exhibits

Exhibit
Number	Description
2.1	Agreement and Plan of Merger, dated as of August 15, 2002, by and among Bankers Insurance Group, Inc., Bankers Insurance Company, Bankers Security Insurance Company, Bankers Management Corporation and Insurance Management Solutions Group, Inc.
10.1	First Amendment to Insurance Administration Services Agreement, effective July 1, 2002, by and between Insurance Management Solutions, Inc. and each of Bankers Insurance Company, Bankers Security Insurance Company and First Community Insurance Company.*
10.2	Insurance Administration Services Agreement, dated March 22, 1999, by and between Insurance Management Solutions, Inc. and First Insurance Company of Hawaii, Ltd. (including Addendums thereto dated January 30, 2000 and July 26, 2002).
10.3	Second Amendment to Insurance Administration Services Agreement, effective August 12, 2002, by and between Insurance Management Solutions, Inc. and each of Bankers Insurance Company, Bankers Security Insurance Company and First Community Insurance Company.
10.4	Credit and Security Agreement, dated and effective August 15, 2002, between Insurance Management Solutions Group, Inc., as Lender, and Bankers Insurance Group, Inc. and Bankers Underwriters, Inc., as Borrower.
10.5	Revolving Line of Credit Master Promissory Note, dated August 15, 2002, by Bankers Insurance Group, Inc. and Bankers Underwriters, Inc. in favor of Insurance Management Solutions Group, Inc.
10.6	Collateral Assignment of Flood Book, dated and effective August 15, 2002, by Bankers Underwriters, Inc. in favor of Insurance Management Solutions Group, Inc.
10.7	Further Assurance and Compliance Agreement, dated August 15, 2002, between Bankers Insurance Group, Inc., Bankers Underwriters, Inc. and Insurance Management Solutions Group, Inc.
99.1	Written Statement of Chief Executive Officer Pursuant to 18 U.S.C. §1350
99.2	Written Statement of Chief Financial Officer Pursuant to 18 U.S.C. §1350

* Previously filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on July 10, 2002, and incorporated by reference herein.

     b) Reports on Form 8-K

The Company filed two current reports on Form 8-K during the three months ended June 30, 2002:

     (1)  On June 13, 2002, the Company filed a Current Report on Form 8-K to report: (i) receipt of payment in full of all amounts due and owing (approximately $5.0 million) from Bankers Insurance Group, Inc. (including its subsidiaries, “BIG”), the Company’s principal customer and majority shareholder, under a short-term secured line of credit; (ii) actions taken to terminate two facility subleases the Company has in place with Bankers Financial Corporation, the parent corporation of BIG, and to consolidate the Company’s operations into leased space the Company already utilizes; and (iii) the resignation of Alejandro M. Sanchez as a director of the Company effective May 21, 2002.

     (2)  On July 10, 2002, the Company filed a Current Report on Form 8-K to report: (i) the resignation of David K. Meehan as Chairman of the Board of Directors of the Company, effective as of July 1, 2002; (ii) the appointment of David M. Howard as Chairman of the Board of Directors of the Company, effective July 1, 2002; and (iii) the amendment, effective July 1, 2002, of the Company’s existing Administration Services Agreement, effective October 1, 2001, with BIG.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Date: August 19, 2002		INSURANCE MANAGEMENT SOLUTIONS GROUP, INC. (Registrant)
	By:	/s/ DAVID M. HOWARD
		David M. Howard Chairman, President and Chief Executive Officer (Principal Executive Officer)
	By:	/s/ ANTHONY R. MARANDO
		Anthony R. Marando Chief Financial Officer and Corporate Secretary (Principal Financial and Accounting Officer)

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EXHIBIT INDEX

Exhibit
Number	Description
2.1	Agreement and Plan of Merger, dated as of August 15, 2002, by and among Bankers Insurance Group, Inc., Bankers Insurance Company, Bankers Security Insurance Company, Bankers Management Corporation and Insurance Management Solutions Group, Inc.
10.1	First Amendment to Insurance Administration Services Agreement, effective July 1, 2002, by and between Insurance Management Solutions, Inc. and each of Bankers Insurance Company, Bankers Security Insurance Company and First Community Insurance Company.*
10.2	Insurance Administration Services Agreement, dated March 22, 1999, by and between Insurance Management Solutions, Inc. and First Insurance Company of Hawaii, Ltd. (including Addendums thereto dated January 30, 2000 and July 26, 2002).
10.3	Second Amendment to Insurance Administration Services Agreement, effective August 12, 2002, by and between Insurance Management Solutions, Inc. and each of Bankers Insurance Company, Bankers Security Insurance Company and First Community Insurance Company.
10.4	Credit and Security Agreement, dated and effective August 15, 2002, between Insurance Management Solutions Group, Inc., as Lender, and Bankers Insurance Group, Inc. and Bankers Underwriters, Inc., as Borrower.
10.5	Revolving Line of Credit Master Promissory Note, dated August 15, 2002, by Bankers Insurance Group, Inc. and Bankers Underwriters, Inc. in favor of Insurance Management Solutions Group, Inc.
10.6	Collateral Assignment of Flood Book, dated and effective August 15, 2002, by Bankers Underwriters, Inc. in favor of Insurance Management Solutions Group, Inc.
10.7	Further Assurance and Compliance Agreement, dated August 15, 2002, between Bankers Insurance Group, Inc., Bankers Underwriters, Inc. and Insurance Management Solutions Group, Inc.
99.1	Written Statement of Chief Executive Officer Pursuant to 18 U.S.C. §1350
99.2	Written Statement of Chief Financial Officer Pursuant to 18 U.S.C. §1350

* Indicates document incorporated herein by reference.

E-1 EX-2.1 3 g77638exv2w1.txt AGREEMENT AND PLAN OF MERGER EXHIBIT 2.1 AGREEMENT AND PLAN OF MERGER BY AND AMONG BANKERS INSURANCE GROUP, INC. BANKERS INSURANCE COMPANY BANKERS SECURITY INSURANCE COMPANY BANKERS MANAGEMENT CORPORATION, AND INSURANCE MANAGEMENT SOLUTIONS GROUP, INC. DATED AS OF AUGUST 15, 2002 TABLE OF CONTENTS ARTICLE I THE OFFER ........................................................ 2 Section 1.01 The Offer ................................................ 2 Section 1.02 Company Action ........................................... 4 ARTICLE II THE MERGER ...................................................... 6 Section 2.01 The Merger ............................................... 6 Section 2.02 Articles Of Incorporation; By-Laws; Officers And Directors ............................................ 6 Section 2.03 Conversion of Shares ..................................... 7 Section 2.04 Dissenting Shares ........................................ 7 Section 2.05 Exchange of Certificates ................................. 8 ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE COMPANY .................. 10 Section 3.01 Capitalization ........................................... 10 Section 3.02 Authorization ............................................ 11 Section 3.03 Governmental Authorization; Non-Contravention ............ 11 Section 3.04 SEC Reports .............................................. 11 Section 3.05 Absence of Certain Changes ............................... 12 Section 3.06 No Undisclosed Material Liabilities ...................... 12 Section 3.07 Litigation ............................................... 13 Section 3.08 Compliance With Applicable Laws .......................... 13 Section 3.09 Brokers and Finders ...................................... 14 ARTICLE IV REPRESENTATIONS AND WARRANTIES OF BANKERS AND ACQUISITION SUBSIDIARY .............................. 14 Section 4.01 Corporate Existence ...................................... 14 Section 4.02 Corporate Authorization .................................. 14 Section 4.03 Acquisition Subsidiary's Ownership and Operations ........ 14 Section 4.04 Governmental Authorization; Non-Contravention ............ 15 Section 4.05 Brokers and Finders ...................................... 15 Section 4.06 Interests in the Company ................................. 15 ARTICLE V CERTAIN COVENANTS AND AGREEMENTS ................................. 16 Section 5.01 Conduct Of Business ...................................... 16 Section 5.02 Announcement ............................................. 17 Section 5.03 Notification of Certain Matters .......................... 17 Section 5.04 Directors' and Officers' Indemnification ................. 18 i Section 5.05 Access ................................................... 18 Section 5.06 Resignation of Directors ................................. 19 Section 5.07 No Tender of Bankers' Shares ............................. 19 Section 5.08 Loan ..................................................... 19 Section 5.09 Bankers Static Interest .................................. 19 Section 5.10 Stock Options ............................................ 20 ARTICLE VI CONDITIONS PRECEDENT ............................................ 20 Section 6.01 Conditions to Each Party's Obligation to Effect the Merger ............................................... 20 ARTICLE VII TERMINATION, AMENDMENT AND WAIVER .............................. 21 Section 7.01 Termination .............................................. 21 Section 7.02 Effect of Termination .................................... 22 Section 7.03 Amendment ................................................ 22 ARTICLE VIII MISCELLANEOUS ................................................. 23 Section 8.01 Nonsurvival of Representations and Warranties ............ 23 Section 8.02 Expenses ................................................. 23 Section 8.03 Applicable Law ........................................... 23 Section 8.04 Notices .................................................. 23 Section 8.05 Entire Agreement ......................................... 25 Section 8.06 Assignment ............................................... 25 Section 8.07 Headings ................................................. 25 Section 8.08 Counterparts ............................................. 25 Section 8.09 No Third Party Beneficiaries ............................. 25 Section 8.10 Severability; Enforcement ................................ 25 Section 8.11 Certain Definitions ...................................... 26 Section 8.12 Interpretation ........................................... 26 Annex A Annex B Loan Documents ii AGREEMENT AND PLAN OF MERGER AGREEMENT AND PLAN OF MERGER dated as of August 15, 2002 (the "Agreement") by and among Bankers Insurance Group, Inc., a Florida corporation ("BIG"), Bankers Insurance Company, a Florida corporation ("BIC"), Bankers Security Insurance Company, a Florida corporation ("BSIC," and together with BIG and BIC, "Bankers"), Bankers Management Corporation, a Florida corporation, ("Acquisition Subsidiary"), all of whose capital stock is owned by BIC and BSIC, and Insurance Management Solutions Group, Inc., a Florida corporation (the "Company"). WHEREAS, the Company has issued and outstanding 12,276,063 shares of common stock, par value $0.01 per share (the "Company Common Stock" or "Shares"); and WHEREAS, BIC and BSIC own 8,349,884 Shares, representing approximately 68% of the outstanding Company Common Stock, hereinafter referred to as the "Bankers Shares"; and WHEREAS, it is proposed that the Company make a cash tender offer (the "Offer") in compliance with the applicable provisions of the Securities and Exchange Act of 1934, as amended (the "Exchange Act"), to acquire all of the issued and outstanding shares of the Company Common Stock for $3.08 per Share (such amount, or any greater amount per share paid pursuant to the Offer, being referred to as the "Per Share Amount") net to the seller in cash, upon the terms and subject to the conditions of this Agreement. The Offer will be followed by a merger of Acquisition Subsidiary with and into the Company, pursuant to which each then-issued and outstanding Share not beneficially owned by Bankers or Acquisition Subsidiary will be converted into the right to receive the Per Share Amount, upon the terms and subject to the conditions provided in this Agreement; and WHEREAS, the Board of Directors of the Company, upon recommendation of a committee comprised of the four independent directors of the Company's Board of Directors (the "Special Committee"), has determined that the consideration to be paid for each Share in the Offer and the Merger is fair to the holders of the Shares other than BIC and BSIC (the "Public Shareholders"), and has determined that the Offer and Merger are advisable and in the best interests of the Public Shareholders and has unanimously voted (i) to recommend that the Public Shareholders accept the Offer and tender their Shares pursuant to the Offer and (ii) to approve the merger of Acquisition Subsidiary with and into the Company, with the Company being the surviving corporation, in accordance with the Florida Business Corporation Act (the "FBCA") following consummation of the Offer (the "Merger"); and WHEREAS, as consideration for Bankers' support of the Offer and the Merger and Bankers agreement not to tender the Bankers Shares in response to the Offer to purchase, upon execution of this Agreement the Company will loan seven million dollars ($7,000,000) to BIG, pursuant to the terms of the documents attached as Annex B hereto; NOW, THEREFORE, in consideration of the mutual representations, warranties and agreements contained in this Agreement, the parties agree as follows: ARTICLE I THE OFFER Section 1.01 The Offer. (a) Unless this Agreement has been terminated in accordance with Article VII, the Company shall use commercially reasonable efforts (i) to complete and file the Offer Documents, as defined below, and commence (within the meaning of Rule 13e-4 promulgated under the Exchange Act) the Offer to acquire any and all Shares at the Per Share Amount, and (ii) to cause the Offer Documents to be disseminated to holders of shares. Subject to the Company's right to extend the offer as herein provided, the Offer shall be scheduled to expire at 5:00 p.m., New York City time on the 21st business day following commencement of the Offer (the "Initial Expiration Date"). Unless this Agreement has been terminated by the Company in accordance with Article VII, upon the filing of the Offer Documents as set forth above the Company shall use commercially reasonable efforts to consummate the Offer in accordance with its terms (except as otherwise permitted by the terms of the Offer) and to accept for payment Shares tendered pursuant to the Offer as soon as legally permitted to do so under applicable law and shall pay for tendered Shares as soon as practical, subject to: (i) the condition that pursuant to the Offer, there shall have been validly tendered and not withdrawn before the Offer expires (after all extensions thereof) the number of shares of Company Common Stock which constitutes at least a majority of the outstanding shares of Company Common Stock other than the Bankers Shares (the "Minimum Condition"); and (ii) the other conditions set forth in Annex A to this Agreement. None of the foregoing conditions shall be waived by the Company without the written consent of Bankers. 2 (b) The Offer shall be made by means of the Offer to Purchase (as defined below) and shall be subject to the Minimum Condition and the other conditions set forth in Annex A to this Agreement, and shall reflect, as appropriate, the other terms set forth in this Agreement and shall include the information specified in Section 607.1104 of the FBCA. The Company reserves the right to increase the amount it offers to pay per Share in the Offer with the prior written consent of Bankers and to extend the Offer to the extent required by law in connection with such an increase. Without the prior written consent of the Special Committee and Bankers, the Company will not: (i) decrease the Per Share Amount; (ii) change the number of Shares to be purchased in the Offer; (iii) change the form of the consideration payable in the Offer; (iv) amend or waive the Minimum Condition; or (v) make any other change in the terms or conditions of the Offer which is materially adverse to the holders of Shares (other than Bankers and its Affiliates). (c) If, on the Initial Expiration Date, all conditions to the Offer will not have been satisfied or waived, the Company may, from time to time, extend the expiration date; provided, however, that the Offer shall not be extended beyond December 31, 2002 without the prior written consent of Bankers; provided, however, if the Offer has not been consummated by December 31, 2002 because of an order or injunction issued by a governmental entity or court of law, the Offer may be extended by the Company until January 31, 2003 without the prior written consent of Bankers. The Per Share Amount shall, subject to any applicable withholding of taxes, be net to the seller in cash, upon the terms and subject to the conditions of the Offer. (d) As soon as reasonably practicable on the date of commencement of the Offer, the Company shall file with the Securities and Exchange Commission (the "SEC") a combined Schedule TO and Schedule 13E-3 under cover of Schedule TO. (The combined Schedule TO and Schedule 13E-3, together with all exhibits and amendments, is collectively referred to as "Schedule TO.") The Schedule TO shall contain or shall incorporate by reference an offer to purchase (the "Offer to Purchase") and the form of the related letter of transmittal (the Schedule TO, the Offer to Purchase and such other documents, together with all supplements and amendments thereto, being referred to herein collectively as the "Offer Documents"). Each of the Offer Documents shall be approved by Bankers 3 prior to their filing with the SEC (which approval shall not be unreasonably withheld, conditioned, or delayed). The Company agrees that the Offer Documents shall comply as to form in all material respects with the Exchange Act and the Offer Documents, on the date first published, sent or given to the Company's shareholders, shall not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. The Company shall promptly correct any information in the Offer Documents if and to the extent that such information shall have become false or misleading in any material respect, and the Company shall take all steps necessary to amend or supplement the Offer Documents and to cause the Offer Documents as so amended or supplemented to be filed with the SEC and the Offer Documents as so amended or supplemented to be disseminated to the Company's shareholders, in each case as and to the extent required by applicable federal securities laws. Bankers hereby, agrees that it shall cooperate and shall cause its counsel to cooperate with the Company and its counsel in the preparation of the Offer Documents and in obtaining any clearances, consents or approvals thereof under applicable law. Bankers shall, upon the request of the Company, promptly provide the Company or its counsel with all documentation and information regarding Bankers or its Affiliates, reasonably requested by the Company in connection with the Offer Documents. Bankers hereby agrees that all such documentation provided to the Company or its counsel will be true, correct and complete, when provided and Bankers agrees that it will promptly correct any information or documentation provided to the Company or its counsel, to the extent it is no longer true, correct or complete. Anything herein to the contrary notwithstanding, the Company shall have no responsibility for the truth, accuracy or completeness of any information regarding or provide by Bankers or its Affiliates. Bankers, the Special Committee and each of their respective counsel shall be given the reasonable opportunity to review and comment on the Offer Documents and any amendments to the Offer Documents before they are filed with the SEC. The Company shall provide Bankers and the Special Committee and their respective counsel with a copy of any written comments or telephonic notification of any oral comments from the SEC or its staff with respect to the Offer Documents promptly after the comments are received. Section 1.02 Company Action. The Company represents that: 4 (a) the Special Committee at its meeting duly called and held on August 15, 2002, by the unanimous vote of its members present and voting: (i) determined that the Offer and the Merger are advisable, fair to and in the best interests of the Public Shareholders; (ii) approved the terms of this Agreement and the transactions contemplated hereby as they relate to the Public Shareholders and unanimously agreed to recommend that the Board of Directors of the Company approve and authorize this Agreement and the transactions contemplated hereby; and (iii) resolved to recommend that the Public Shareholders accept the Offer and tender their Shares pursuant to the Offer; provided that such recommendation may be withdrawn, modified or amended if the Special Committee determines in good faith after consultation with independent legal counsel that its failure to take such action would violate its fiduciary duties under applicable law; and (b) The Board of Directors of the Company at its meeting duly called and held on August 15, 2002, by unanimous vote of the directors present and voting: (i) determined that the Offer and the Merger are advisable, fair to and in the best interest of the Public Shareholders; (ii) approved this Agreement and the transactions contemplated hereby; and (iii) resolved to recommend that the Public Shareholders accept the Offer and tender their Shares pursuant to the Offer; provided that such recommendation may be withdrawn, modified or amended to the extent the Board of Directors, upon recommendation of the Special Committee, determines in good faith after consultation with independent legal counsel that its failure to take such action would violate the fiduciary duties of the Board of Directors under applicable law. (c) Houlihan Lokey Howard & Zukin Financial Advisors, Inc. (the "Advisor") has delivered to the Special Committee a written opinion that, based on, and subject to, the various assumptions and qualifications set forth in that opinion, as of the date of this Agreement, the consideration to be received by the holders of Shares (other than Bankers and Acquisition Subsidiary) pursuant to the Offer and the Merger is fair to such holders from a financial point of view. A copy of the opinion has been provided to Bankers, and the Company has been authorized by the Advisor to include the opinion in its entirety, in the Offer Documents; provided, however that 5 any description of the content of the opinion shall be approved by the Advisor, which approval will not be unreasonably withheld. ARTICLE II THE MERGER Section 2.01 The Merger. As soon as practical after the satisfaction of the conditions provided in Article VI, the parties hereto shall take all necessary and appropriate action to cause the Merger to be effective in accordance with Section 607.1104 of the FBCA. The parties shall file with the Department of State of the State of Florida, articles of merger (the "Articles of Merger") executed in accordance with the relevant provisions of the FBCA and shall make all other filings or recordings required under the FBCA. The Merger shall become effective at such time as the Articles of Merger are duly filed with the Department of State of the State of Florida or at such other time as is permissible under the FBCA and as Bankers and the Company shall agree and as specified in the Articles of Merger (the time the Merger becomes effective being the "Effective Time"). Section 2.02 Articles Of Incorporation; By-Laws; Officers And Directors. Pursuant to the Merger: (a) the Amended and Restated Articles of Incorporation and the Amended and Restated Bylaws of the Company as in effect immediately prior to the Effective Time shall be the Articles of Incorporation and By-laws of the surviving corporation following the Merger until thereafter changed or amended as provided therein and with applicable law; (b) the directors of Acquisition Subsidiary immediately prior to the Effective Time shall be the directors of the Surviving Corporation following the Merger and until the earlier of their death, resignation or removal or until their respective successors are duly elected or appointed and qualified; and (c) the officers of the Company immediately prior to the Effective Time shall be the officers of the Surviving Corporation until the earlier of their death, resignation or removal or until their respective successors are duly elected or appointed and qualified. 6 Section 2.03 Conversion of Shares. As of the Effective Time, by virtue of the Merger and without any action on the part of the Company, Bankers, Acquisition Subsidiary or the holders of any Shares: (a) Shares of Acquisition Subsidiary. Each share of common stock of Acquisition Subsidiary which is issued and outstanding immediately prior to the Effective Time shall be converted into and become one fully paid and nonassessable share of common stock of the Surviving Corporation; (b) Capital Stock of the Company. Subject to Sections 2.03(c) and 2.04, (i) each share of the Company Common Stock which is issued and outstanding immediately prior to the Effective Time shall be converted into and become a right to receive the Per Share Amount in cash and shall automatically be canceled and retired and shall cease to exist; and (ii) each holder of a certificate representing any such shares of the Company Common Stock shall, to the extent such certificate represents such shares, cease to have any rights with respect to such shares, except the right to receive the Per Share Amount allocable to the shares represented by such certificate upon surrender of such certificate in accordance with Section 2.06. (c) Cancellation of Treasury Stock and Bankers-Owned Stock. Any shares of the Company Common Stock that are owned immediately prior to the Effective Time by the Company as treasury stock and each of the Bankers Shares shall be canceled and retired and shall cease to exist, and no consideration shall be delivered in exchange for such shares. Each holder of a certificate representing any such shares shall cease to have any rights with respect to such shares. Section 2.04 Dissenting Shares. (a) Stockholders who own Shares immediately before the Effective Time who comply with the requirements of Section 607.1320 of the FBCA regarding the rights of dissenting shareholders shall be entitled to be paid the fair value of the shares as determined under the procedures set forth in Section 607.1320 of the FBCA. (b) Notwithstanding anything in this Agreement to the contrary, shares of the Company Common Stock outstanding immediately prior to the Effective Time and which are held by a shareholder who has properly exercised appraisal rights thereto in accordance with Section 607.1320 of the FBCA ("Dissenting Shares"), shall not be converted into a right to receive the Per Share Amount, unless such holder fails to perfect or withdraws or otherwise loses such holder's right to appraisal, if any. If, after the Effective Time, such holder fails to perfect or withdraws or loses any such right to appraisal, each such share of such holder shall 7 be treated as a share that had been converted as of the Effective Time into the right to receive the Per Share Amount, without interest, in accordance with Section 2.03(b). The Company shall give Bankers: (i) prompt notice of any demands for appraisal of any shares of the Company Common Stock received by the Company; and (ii) the opportunity to participate in and direct all negotiations and proceedings with respect to any such demands. The Company shall not, without the prior written consent of Bankers, make any payment with respect to, or settle, offer to settle or otherwise negotiate, any such demands. (c) Bankers shall not, and shall cause its Affiliates and Subsidiaries not, to exercise appraisal rights with respect to any of the Bankers Shares. Section 2.05 Exchange of Certificates. (a) Exchange Agent. Prior to the Effective Time, the Company shall designate an entity to act as exchange agent (the "Exchange Agent") for the payment of the Per Share Amount for the holders of the Shares. As of the Effective Time, Company shall have deposited with the Exchange Agent, for the benefit of the holders of shares of the Company Common Stock, for exchange in accordance with this Section 2.06, the aggregate amount of cash payable pursuant to Section 2.03(b) hereof in exchange for outstanding shares of the Company Common Stock and (the "Exchange Fund"). (b) Exchange Procedures. Promptly after the Effective Time, the Exchange Agent shall mail to each holder of record of a certificate or certificates which immediately prior to the Effective Time represented issued and outstanding shares of the Company Common Stock whose shares were converted into the right to receive cash pursuant to Section 2.03(b) a letter of transmittal (which shall specify that delivery shall be effected, and risk of loss and title to the certificates representing such shares of the Company Common Stock shall pass, only upon delivery of the certificates representing such shares of the Company Common Stock to the Exchange Agent and shall be in such form and have such other provisions as the Exchange Agent may reasonably specify), and instructions for use in effecting the surrender of the certificates representing such shares of the Company Common Stock, in exchange for the Per Share Amount. Upon surrender to the Exchange Agent of a certificate or certificates representing shares of the Company Common Stock and acceptance thereof by the Exchange Agent, the holder thereof shall be entitled to the amount of cash into which the number of shares of the Company Common Stock previously represented by such certificate or certificates surrendered shall have been converted pursuant to this Agreement. The Exchange Agent shall accept such certificates upon compliance with such reasonable terms and conditions 8 as the Exchange Agent may impose to effect an orderly exchange thereof in accordance with normal exchange practices. After the Effective Time, there shall be no further transfer on the records of the Company or its transfer agent of certificates representing shares of the Company Common Stock and if such certificates are presented to the Company for transfer, they shall be canceled against delivery of the Per Share Amount allocable to the shares of the Company Common Stock represented by such certificate or certificates to the record holder. If any Per Share Amount is to be remitted to a name other than that in which the certificate for the Company Common Stock surrendered for exchange is registered, it shall be a condition of such exchange that the certificate so surrendered shall be properly endorsed, with signature guaranteed, or otherwise in proper form for transfer and that the person requesting such exchange shall pay to the Company or its transfer agent any transfer or other taxes required by reason of the payment of the Per Share Amount to a name other than that of the registered holder of the certificate surrendered, or establish to the satisfaction of the Company or its transfer agent that the tax has been paid or is not applicable. Until surrendered as contemplated by this Section 2.06, each certificate for shares of the Company Common Stock shall be deemed at any time after the Effective Time to represent only the right to receive upon surrender the Per Share Amount allocable to the shares represented by such certificates contemplated by Section 2.03(b). No interest will be paid or will accrue on any amount payable as a Per Share Amount. Subject to completion of the documentation referred to above, the Per Share Amount shall be paid at the Effective Time to holders of the Company Common Stock. (c) No Further Ownership Rights in the Company Stock. The Per Share Amount paid upon the surrender for exchange of certificates representing shares of the Company Common Stock in accordance with the terms of this Section 2.06 shall be deemed to have been paid in full satisfaction of all rights pertaining to the shares of the Company Common Stock represented by such certificates. (d) Termination of Exchange Fund. Any portion of the Exchange Fund (including any interest and other income received by the Exchange Agent in respect of all such funds) which remains undistributed to the holders of the certificates representing shares of the Company Common Stock for six months after the Effective Time shall be delivered to the Surviving Corporation, upon demand, and any holders of shares of the Company Common Stock prior to the Merger who have not theretofore complied with this Section 2.06 shall thereafter look only to the Surviving Corporation and Bankers and only as general creditors thereof for payment of their claim for the Per Share Amount to which they may be entitled. (e) No Liability. No party to this Agreement shall be liable to any Person (as hereinafter defined) in respect of any amount from the Exchange Fund delivered to a public official pursuant to any applicable abandoned property, escheat or similar law. 9 (f) Lost Certificates. In the event any certificate or certificates representing shares of the Company Common Stock shall have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the Person claiming such certificate or certificates to be lost, stolen or destroyed, the Exchange Agent will issue in exchange for such lost, stolen or destroyed certificate the Per Share Amount deliverable in respect thereof as determined in accordance with this Section 2.06, provided that the Person to whom the Per Share Amount is paid shall, as a condition precedent to payment, indemnify Bankers in an agreement reasonably satisfactory to it against any claim that may be made against Bankers or the Company with respect to the certificate claimed to have been lost, stolen or destroyed. ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE COMPANY The Company represents and warrants to Bankers and Acquisition Company as follows: Section 3.01 Capitalization. The authorized capital stock of the Company consists of 100,000,000 shares of Company Common Stock (par value $0.01) and 20,000,000 shares of preferred stock (par value $0.01). As of the close of business on August 14, 2002 (i) there were outstanding 12,276,063 shares of Company Common Stock, (ii) no shares of the Company Common Stock were held in the Company's treasury, (iii) no shares of the Company preferred stock were outstanding and (iv) 454,750 shares of Company Common Stock were subject to outstanding options to purchase Company Common Stock ("Company Stock Options"). Except as set forth above, as of this date of the Agreement, no shares of capital stock or other voting securities of the Company were outstanding. All outstanding shares of capital stock of the Company have been duly authorized and validly issued and are fully paid and nonassessable. Except for the Company Stock Options there are no outstanding options, warrants or other rights to acquire from the Company, and no preemptive or similar rights, subscription or other rights, convertible or exchangeable securities, agreements, arrangements or commitments of any character, relating to the capital stock of the Company, obligating the Company to issue, transfer or sell, any capital stock, voting securities or securities convertible into or exchangeable for capital stock or voting securities of the Company or obligating the Company to grant, extend or enter into any such option, warrant, subscription or other right, convertible or exchangeable security, agreement, arrangement or commitment. The Company has delivered to Bankers a complete and accurate list of all outstanding Company Stock Options including the names of persons holding such options, the number of options held by each person and the grant date and exercise price for each such option. No options to purchase Company Common Stock will be granted by the Company after the date of this Agreement. 10 Section 3.02 Authorization. The Company has all requisite corporate power and authority to enter into this Agreement to carry out its obligations under this Agreement and to consummate the transactions contemplated by this Agreement. The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby have been duly authorized by all requisite corporate action on the part of the Company. This Agreement has been duly executed and delivered by the Company and, assuming the due authorization, execution and delivery hereof by Bankers and Acquisition Subsidiary, constitutes the valid and binding obligation of the Company, enforceable against the Company except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization or similar laws affecting creditors' rights generally or by general equitable principles. Section 3.03 Governmental Authorization; Non-Contravention. The execution, delivery and performance by the Company of this Agreement and the consummation by the Company of the transactions contemplated hereby require no action by or in respect of, or filing with, any governmental body, agency, official or authority other than (a) the filing of the Articles of Merger in connection with the Merger in accordance with FBCA, (b) applicable requirements under the Exchange Act and (c) other actions or filings which if not taken or made would not, individually or in the aggregate, reasonably be likely to have a Material Adverse Effect on the Company or prevent or materially delay the Company's consummation of the Offer or Merger. The execution, delivery and performance by the Company of this Agreement and the consummation by the Company of the transactions contemplated hereby do not and will not contravene or conflict with the amended and restated articles of incorporation or by-laws of the Company, or, except as would not be reasonably likely to have a Material Adverse Effect, (a) contravene or conflict with or constitute a violation of any provision of any Law binding upon or applicable to the Company or any of its Subsidiaries, (b) constitute a default under or give rise to any right of termination, cancellation or acceleration of any right or obligation of the Company or any of its Subsidiaries or to a loss of any benefit to which the Company or any of its Subsidiaries is entitled under any provision of any agreement, contract, lease or other instrument binding upon the Company or any of its Subsidiaries or any license, franchise, permit or other similar authorization held by the Company or any of its Subsidiaries, or (c) result in the creation or imposition of any lien or encumbrance on any asset of the Company or any of its Subsidiaries. Section 3.04 SEC Reports. The Company has filed all reports and schedules required to be filed with the SEC since January 1, 2001 (collectively the "SEC Documents"). As of its respective date, each SEC Document complied in all material respects with the requirements of 11 the Exchange Act and did not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. The audited consolidated financial statements of the Company, the unaudited interim financial statements included in the SEC Documents and the draft balance sheet as at June 30, 2002, and the statement of operations and cash flows for the period then ended provided to Bankers on the date hereof, complied as to form in all material respects with applicable accounting requirements and published rules and regulations of the SEC with respect thereto, and fairly present the financial condition and the results of operations, changes in stockholders' equity and cash flows of the Company and the consolidated Company Subsidiaries as at the respective dates and for the periods referred to in such financial statements, all in accordance with United States generally accepted accounting principles applied on a basis consistent with prior periods, subject in the case of interim statements to normal recurring year-end adjustments that have not been and are not likely to be material in amount, and the absence of notes. Section 3.05 Absence of Certain Changes. Since June 30, 2002 there has not been any event, occurrence or development which individually or in the aggregate, has had, or would reasonably be likely to have, a Material Adverse Effect (other than events, occurrences or developments related directly or indirectly to Bankers or its Affiliates). Since June 30, 2002, the Company and its Subsidiaries have conducted their respective businesses in the ordinary course, consistent with past practice. The activities of the Special Committee in the review of strategic alternatives for the Company and the transactions contemplated by this Agreement shall be considered exceptions to this representation and warranty. Section 3.06 No Undisclosed Material Liabilities. There are no liabilities of the Company or any Subsidiary of the Company of any kind whatsoever, whether accrued, contingent, absolute, determined, determinable or otherwise, other than: 12 (a) liabilities disclosed or provided for in the balance sheet as at June 30, 2002 thereto; (b) liabilities incurred since June 30, 2002 in the ordinary course of business consistent with past practice; (c) liabilities disclosed in the SEC Documents filed prior to the date of this Agreement; (d) liabilities under contracts entered into in the ordinary course of business consistent with past practice; (e) liabilities related to the review, negotiation, approval or performance of this Agreement and the actions contemplated hereby; and (f) liabilities relating to transactions with Bankers and its Affiliates. Section 3.07 Litigation. As of the date hereof, there is no action, suit, investigation or proceeding (except any active suit, investigation or proceeding caused by or relating to Bankers) pending against, or to the knowledge of any of the Executive Officers of the Company threatened against or affecting, the Company or any of its Subsidiaries or any of their respective properties or any of their respective officers or directors which, if adversely determined, would individually or in the aggregate be reasonably likely to have a Material Adverse Effect. Section 3.08 Compliance With Applicable Laws. (a) The Company and its Subsidiaries have, since June 30, 2002 conducted their business and operations in compliance with all applicable Laws except for any failures to be in compliance that, individually or in the aggregate, would not reasonably be likely to have a Material Adverse Effect. (b) Neither the Company nor any Subsidiary has failed to obtain and, where applicable renew, any licenses, permits, franchises or other governmental authorizations necessary to the ownership of its properties or to the conduct of its business, which failure would, individually, or in the aggregate, reasonably be likely to have a Material Adverse Effect, and, after giving effect to the transactions contemplated hereby, all such licenses, permits, franchises and other governmental authorizations will continue to be valid and in full force and effect except where the failure to be valid and in full force and effect (i) would not individually or in the aggregate, be reasonably likely to have a Material Adverse Effect or (ii) relates directly or indirectly to Bankers or its Affiliates. 13 Section 3.09 Brokers and Finders. Other than Advisor, the Company has not employed any broker, finder, advisor or intermediary in connection with the transactions contemplated by this Agreement that would be entitled to a broker's, finder's or similar fee or commission in connection therewith or upon the consummation thereof. The Company shall pay any fees due to Advisor. ARTICLE IV REPRESENTATIONS AND WARRANTIES OF BANKERS AND ACQUISITION SUBSIDIARY Each of Bankers (for purposes of these representations and warranties, Bankers meaning each of BIG, BIC and BSIC individually) and Acquisition Subsidiary hereby represents and warrants, jointly and severally, to the Company as follows: Section 4.01 Corporate Existence. Bankers and Acquisition Subsidiary are corporations duly incorporated, validly existing and in good standing under the laws of the State of Florida. Section 4.02 Corporate Authorization. Bankers and Acquisition Subsidiary each has all requisite corporate power and authority to enter into this Agreement to carry out its obligations under this Agreement and to consummate the transactions contemplated by this Agreement. The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby have been duly authorized by all requisite corporate action on the part of Bankers and Acquisition Subsidiary. This Agreement has been duly executed and delivered by each of Bankers and Acquisition Subsidiary and assuming the due authorization, execution and delivery hereof by the Company, constitutes the valid and binding obligation of Bankers and Acquisition Subsidiary enforceable against Bankers and Acquisition Subsidiary except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization or similar laws affecting creditors' rights generally or by general equitable principles. Section 4.03 Acquisition Subsidiary's Ownership and Operations. All of the issued and outstanding shares of Acquisition Subsidiary are owned by BIC and BSIC. Acquisition Subsidiary was formed solely for the purpose of engaging in the transactions contemplated by this Agreement and has not engaged in 14 any business activities or conducted any operations other than in connection with such transactions. Section 4.04 Governmental Authorization; Non-Contravention. The execution, delivery and performance by Bankers and Acquisition Subsidiary of this Agreement and the consummation by Bankers and Acquisition Subsidiary of the transactions contemplated hereby require no action by or in respect of, or filing with, any governmental body, agency, official or authority other than (a) the filing of the Articles of Merger in connection with the Merger in accordance with FBCA, (b) applicable requirements under the Exchange Act and (c) other actions or filings which if not taken or made would not, individually or in the aggregate, prevent or materially delay the consummation of the Offer or Bankers' and Acquisition Subsidiary's consummation of the Merger. The execution, delivery and performance by Bankers and Acquisition Subsidiary of this Agreement and the consummation by Bankers and Acquisition Subsidiary of the transactions contemplated hereby do not and will not (a) contravene or conflict with the restated articles of incorporation or by-laws of Bankers or Acquisition Subsidiary, (b) contravene or conflict with or constitute a violation of any provision of any material Law binding upon or applicable to Bankers and Acquisition Subsidiary or any of their Subsidiaries, (c) constitute a default under or give rise to any right of termination, cancellation or acceleration of any right or obligation of Bankers or Acquisition Subsidiary or to a loss of any benefit to which Bankers or Acquisition Subsidiary is entitled under any provision of any material agreement, contract, lease or other instrument binding upon Bankers or Acquisition Subsidiary or any of their Subsidiaries or any material license, franchise, permit or other similar authorization held by Bankers or Acquisition Subsidiary or any of their Subsidiaries, or (d) result in the creation or imposition of any material lien or encumbrance on any asset of Bankers or Acquisition Subsidiary or any of their Subsidiaries. Section 4.05 Brokers and Finders. Neither Bankers nor Acquisition Subsidiary has employed any broker, finder, advisor or intermediary in connection with the transactions contemplated by this Agreement which would be entitled to a broker's, finder's or similar fee or commission in connection therewith or upon the consummation thereof. Section 4.06 Interests in the Company. BIC and BISC own the Bankers Shares. No other corporate affiliate of Bankers owns shares of Company Common Stock. 15 ARTICLE V CERTAIN COVENANTS AND AGREEMENTS Section 5.01 Conduct Of Business. From the date of this Agreement until the earlier of (i) the Effective Time or (ii) the termination of this Agreement in accordance with Article VII hereof, except as otherwise expressly contemplated by this Agreement or consented to in writing by Bankers: (a) the Company and each of the Subsidiaries shall operate the businesses conducted by them in the ordinary and usual course and shall use their commercially reasonable efforts to preserve intact their present business organizations and use commercially reasonable efforts to preserve their relationships with material customers and suppliers; (b) the Company shall not, and shall not permit any Subsidiary to: (i) change any of the accounting principles or practices used by it, except as may be required as a result of a change in law or in generally accepted accounting principles; (ii) pay, discharge or satisfy any claims, liabilities or obligations (absolute, accrued, asserted or unasserted, contingent or otherwise), other than (A) the payment, discharge, or satisfaction in the ordinary course of business and consistent with past practice, (B) payment of any liabilities recorded on the balance sheet as of June 30, 2002, (C) payment of reasonable expenses incurred in connection with activities of the Special Committee and with the Offer and the Merger and (D) payment of amounts paid to resolve the class action lawsuits currently pending against the Company consolidated under Case No. 8:00-CV-2013-T-26MAP; provided, however, that Bankers will not unreasonably withhold, delay or condition its consent to any actions proposed to be taken by the Company which would otherwise be prohibited by this clause (ii); (iii) issue any shares of its Company Common Stock or its preferred stock except pursuant to Company Stock Options outstanding as of the date of this Agreement; or (iv) amend either its articles of incorporation or by-laws; (c) except for actions made in the ordinary course of business consistent with past practice, the Company shall not, and shall not permit any Subsidiary to increase the compensation of its directors, officers or employees, pay any bonus, grant any option to purchase any Company Common Stock, grant any severance or 16 termination pay to, or enter into or amend any employment or severance agreement with, any director, officer or other employee of the Company or any Subsidiary, establish, adopt, enter into or amend any collective bargaining, bonus, profit sharing, thrift, compensation, stock option, restricted stock, pension, retirement, deferred compensation, employment, termination, severance or other plan, agreement, trust, fund, policy or arrangement for the benefit of any current or former directors, officers or employees, materially change any actuarial assumption or other assumption used to calculate funding obligations with respect to any pension or retirement plan, or change the manner in which contributions to any such plan are made or the basis on which such contributions are determined, except, in each case, as may be required by law or contractual commitments which are existing as of the date of this Agreement; (d) except for such actions as may be required by law, the Company shall not, and shall not permit any Subsidiary to, take any action that will result in any of the representations and warranties of the Company set forth in Section 1.02 and Article III of this Agreement becoming untrue or and, except for actions as may be required by law, neither Bankers (or its Affiliates) or the Company will take any action which will result in any of the conditions to the Merger set forth in Article VI not being satisfied. Section 5.02 Announcement. Neither the Company, on the one hand, nor Bankers or Acquisition Subsidiary, on the other hand, shall issue any press release or otherwise make any public statement with respect to this Agreement and the transactions contemplated hereby without the prior consent of the other (which consent shall not be unreasonably withheld, conditioned or delayed), except as may be required by applicable Law or stock exchange regulation. Notwithstanding anything in this Section 5.02 to the contrary, Bankers, Acquisition Subsidiary and the Company will, to the extent practicable, consult with each other before issuing, and provide each other the opportunity to review and comment upon, any such press release or other public statements with respect to this Agreement and the transactions contemplated hereby whether or not required by Law. Section 5.03 Notification of Certain Matters. The Company shall give prompt notice to Bankers, and Bankers shall give prompt notice to the Company, of: (a) the occurrence or nonoccurrence of any event the occurrence, or nonoccurrence, of which would be reasonably likely to cause any representation or warranty contained in this Agreement to be untrue or inaccurate in any material respect at or prior to the Effective Time; and 17 (b) any material failure of the Company or Bankers, as the case may be, to comply with or satisfy any covenant, condition or agreement to be complied with or satisfied by it hereunder, provided that the delivery of any notice pursuant to this Section 5.03 shall not limit or otherwise affect the remedies available hereunder to the party receiving such notice. Section 5.04 Directors' and Officers' Indemnification. (a) Bankers shall cause the articles of incorporation and the by-laws of the Surviving Corporation to contain the provisions with respect to indemnification and exculpation from liability set forth in the Company's restated articles of incorporation and by-laws on the date of this Agreement, which provisions shall not be amended, repealed or otherwise modified for a period of seven years from the Effective Time in any manner that would adversely affect the rights thereunder of individuals who on or prior to the Effective Time were directors, officers, employees or agents of the Company, unless such modification is required by law. Bankers hereby guarantees the payment obligations of the Surviving Corporation arising from the indemnification and exculpation provisions referred to in the preceding sentence. (b) Bankers or the Surviving Corporation shall maintain the Company's existing officers' and directors' liability insurance covering claims relating to actions taken or omitted prior to the Effective Time for a period of not less than four years after the Effective Time; provided that Bankers may substitute therefor policies of substantially equivalent coverage and amounts containing terms no less favorable in the aggregate to the former directors or officers of the Company to which such insurance applies; provided, further, that in no event shall the Company be required to pay in the third and fourth years after the Effective Time aggregate premiums for insurance under this Section 5.04(b) in the third and fourth years after the Effective Time in excess of 200% of the aggregate premiums paid by the Company for the second year after the Effective Time on an annualized basis for such purpose; and provided, further, that if Bankers or the Surviving Corporation is unable to obtain the amount of insurance required by this Section 5.04(b) for such aggregate premium, Bankers or the Surviving Corporation shall obtain as much insurance as can be obtained for an annual premium not in excess of 200% of the aggregate premiums paid by the Company for the second year after the Effective Time on an annualized basis for such purpose. Section 5.05 Access. Between the date of this Agreement and the Effective Time, the Company shall (and shall cause each of the Subsidiaries to) afford the officers, employees, accountants, counsel, financing sources and other representatives of Bankers, reasonable access to all of its properties, books, contracts, commitments and records 18 and during such period the Company shall (and shall cause each of the Subsidiaries to) furnish promptly to Bankers: (a) a copy of each report, schedule, registration statement and other document filed or received by it during such period pursuant to the requirements of federal securities laws; and (b) all other information concerning its business, properties and personnel as Bankers may reasonably request. Section 5.06 Resignation of Directors. Prior to the Effective Time, the Company shall cause each member of its Board of Directors to execute and deliver a letter effectuating his or her resignation as a director of such Board effective immediately prior to the Effective Time. Section 5.07 No Tender of Bankers' Shares. Bankers shall not, and shall cause its Affiliates and Subsidiaries (including, but not limited to Acquisition Subsidiary) not to, tender any of the Bankers Shares in response to the Offer to Purchase. Section 5.08 Loan. If requested by BIG, pursuant to the terms of the Loan Document, no later than three business days from the date of this Agreement, the Company shall loan and advance to BIG and/or Bankers Underwriters, Inc., a wholly owned subsidiary of BIG ("BUI"), Seven Million Dollars ($7,000,000) in immediately available funds to an account designated by BIG, provided that BIG and BUI shall have executed and delivered to the Company (i) a Credit and Security Agreement; (ii) a Revolving Line of Credit Master Promissory Note (the "Note"); and (iii) a Collateral Assignment of Flood Book (the "Collateral Assignment"), all in substantially the form attached hereto as Annex B together with such related instruments and documentation as the Company shall reasonably require (collectively, the "Loan Documents"). As security for payment of the Note, BIG shall have caused BUI to grant to the Company a first priority security interest in all of its flood insurance agency contracts pursuant to the terms of the Collateral Assignment. Section 5.09 Bankers Static Interest. Bankers and Acquisition Subsidiary hereby agree that from the date hereof through the earlier of (i) the Effective Time, or (ii) the termination of this Agreement in accordance with Article VII hereof, neither Bankers, Acquisition Subsidiary nor their respective Affiliates or Subsidiaries will: 19 (a) acquire, purchase or otherwise become the owner of the Company Common Stock other than the Bankers Shares; (b) give, sell, transfer or otherwise dispose of any of the Bankers Shares; or (c) pledge any of the Bankers Shares, unless it shall have secured the agreement of the party to whom such shares have been pledged not to tender any of the Bankers Shares in response to the Offer to Purchase. Section 5.10 Stock Options. The Company shall, within three business days from the date of this Agreement, obtain and deliver to Bankers consents of all of its Executive Officers and directors to the cancellation of all outstanding options to purchase Company Common Stock which they hold. If requested by Bankers, the Company shall use all commercially reasonable efforts to obtain consents of employees specified by Bankers to the cancellation of their outstanding options to purchase Company Common Stock within such period of time as may be reasonably requested by Bankers. The foregoing consents shall be in a form which is reasonably satisfactory to Bankers. ARTICLE VI CONDITIONS PRECEDENT Section 6.01 Conditions to Each Party's Obligation to Effect the Merger. The respective obligation of each party to effect the Merger shall be subject to the satisfaction of each of the following conditions (any of which may be waived by the parties hereto in writing, in whole or in part, to the extent permitted by applicable law): (a) No Injunction or Proceeding. No order or injunction of a court of competent jurisdiction shall be in effect, no Law shall have been enacted by a governmental entity and no action, suit or proceeding shall have been instituted, which prohibits the consummation of the Merger or materially challenges the transactions contemplated hereby. 20 (b) Consents. Other than filing the Articles of Merger, and except as would not be reasonably likely to have a Material Adverse Effect, all consents, approvals and authorizations of and filings with governmental entities required for the consummation of the transactions contemplated hereby, if any, shall have been obtained or effected or filed. (c) Purchase of Shares in Offer. The Company shall have purchased Shares pursuant to the Offer. ARTICLE VII TERMINATION, AMENDMENT AND WAIVER Section 7.01 Termination. This Agreement may be terminated and the Offer and Merger may be abandoned at any time prior to the Effective Time: (a) by the mutual written consent of the Boards of Directors of Bankers, Acquisition Subsidiary and the Company (upon recommendation of the Special Committee); (b) by either the Company (upon the recommendation of the Special Committee), on the one hand, or Bankers and Acquisition Subsidiary, on the other hand, if prior to the purchase of any Shares by the Company: (i) (x) the Offer (including all extensions) shall have expired without any Shares being purchased pursuant to the Offer or (y) the Company shall not have accepted for payment any Shares pursuant to the Offer by December 31, 2002, or, if the offer has been extended after December 31, 2002 because of an order or injunction issued by a governmental entity or a court of law, by January 31, 2003; provided, however, that the right to terminate this Agreement under this Section 7.01(b)(i) shall not be available to any party whose failure to fulfill any obligation under this Agreement has been the cause of, or resulted in, the failure of the Company to purchase the Shares pursuant to the Offer on or before such date; (ii) any governmental entity shall have issued an order, decree or ruling or taken any other action (which order, decree, ruling or other action the parties to this Agreement shall use their reasonable efforts to lift), which permanently restrains, enjoins or otherwise prohibits the acceptance for payment of, or payment for, Shares pursuant to the Offer or the Merger and such order, decree, ruling or other action shall have become final and nonappealable; or 21 (iii) if the Board of Directors of the Company or the Special Committee shall have taken any of the actions specified in Section (b)(iv) of Annex A; (c) by the Company (upon recommendation of the Special Committee) prior to the purchase of any shares by the Company, if Bankers or Acquisition Subsidiary shall have breached in any material respect any of their respective representations, warranties, covenants or other agreements contained in this Agreement or the Loan Documents, and the breach cannot be or has not been cured within 10 days after the giving of written notice by the Company to Bankers or Acquisition Subsidiary, as applicable; or (d) by Bankers, if. (i) before the purchase of Shares pursuant to the Offer, (A) the Company shall have breached in any material respect any representation, warranty, covenant or other agreement contained in this Agreement, and the breach cannot be or has not been cured within 10 days after the giving of written notice to the Company, or (B) a change has occurred such that the conditions in Section (b)(ii) of Annex A could not be satisfied as of the expiration of the Offer (including extensions); or (ii) if the loan has been requested by BIG, the Company has not fully complied with its obligations under Section 5.08. Section 7.02 Effect of Termination. If this Agreement is terminated as provided in Section 7.01, written notice of such termination shall be given by the terminating party or parties to the other party or parties specifying the provision of this Agreement pursuant to which such termination is made, and this Agreement shall become null and void and there shall be no liability on the part of Bankers, Acquisition Subsidiary or the Company (except as set forth in this Section 7.02 which shall survive any termination of this Agreement); provided that nothing in this Agreement shall relieve any party from any liability or obligation with respect to any material breach of this Agreement. Section 7.03 Amendment. The parties may amend this Agreement in writing; provided, however, that any amendment of this Agreement on behalf of the Company shall be subject to the approval of the Board of Directors of the Company which approval shall be given only if recommended by the Special Committee. 22 ARTICLE VIII MISCELLANEOUS Section 8.01 Nonsurvival of Representations and Warranties. None of the representations and warranties in this Agreement or in any instrument delivered pursuant to this Agreement shall survive the Effective Time. All such representations and warranties will be extinguished on consummation of the Merger and neither the Company, any Subsidiary nor any of its officers, directors or employees or shareholders shall be under any liability whatsoever with respect to any such representation or warranty after such time. This Section 8.01 shall not limit any covenant or agreement of the parties which by its terms contemplates performance after the Effective Time. Section 8.02 Expenses. Except as specifically contemplated by this Agreement, all costs and expenses incurred in connection with this Agreement and the consummation of the transactions contemplated by this Agreement shall be paid by the party incurring such expenses. Section 8.03 Applicable Law. This Agreement and the legal relations between the parties hereto shall be governed by and construed in accordance with the laws of the State of Florida, without regard to principles of conflicts of law that would require application of any other law. Section 8.04 Notices. All notices and other communications under this Agreement shall be in writing and shall be deemed to have been duly given or made as follows: (a) if sent by registered or certified mail in the United States, return receipt requested, upon receipt; (b) if sent by reputable overnight air courier (such as DHL or Federal Express), two business days after being sent; (c) if sent by facsimile transmission, with a copy mailed on the same day in the manner provided in clauses (a) or (b) above, when transmitted and receipt is confirmed by telephone; or (d) if otherwise actually personally delivered, when delivered. 23 All notices and other communications under this Agreement shall be sent or delivered as follows: If to the Company, to: Insurance Management Solutions Group, Inc. 360 Central Avenue St. Petersburg, Florida 33701 with a copies to: Fowler White Boggs Banker P.A. 501 E. Kennedy Boulevard, Suite 1700 Tampa, Florida 33602 Attention: R. Alan Higbee, Esq. and: Foley & Lardner One IBM Plaza 330 North Wabash Avenue Suite 3300 Chicago, Illinois 60611 Attention: Todd B. Pfister, Esq. If to Bankers or Acquisition Subsidiary, to: 360 Central Avenue St. Petersburg, Florida 33701 Attention: Robert M. Menke with a copy to: Skadden, Arps, Slate, Meagher & Flom LLP One Beacon Street, 31st Floor Boston, MA 02108-3194 Telephone: (617) 573-4800 Facsimile: (617) 573-4822 Attention: Margaret A. Brown, Esq. Each party may change its address by written notice in accordance with this Section. 24 Section 8.05 Entire Agreement. This Agreement (including the Loan Documents and the other documents and instruments referred to in this Agreement) contains the entire understanding of the parties with respect to the subject matter contained in this Agreement, and supersedes and cancels all prior agreements, negotiations, correspondence, undertakings and communications of the parties, oral or written, respecting such subject matter. Section 8.06 Assignment. Neither this Agreement nor any of the rights, interests or obligations under this Agreement shall be assigned by any of the parties (whether by operation of law or otherwise) without the prior written consent of the other parties. Subject to the first sentence of this Section 8.06, this Agreement will be binding upon, inure to the benefit of and be enforceable by, the parties and their respective successors and assigns. Section 8.07 Headings. The article, section and paragraph headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. Section 8.08 Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original but all of which shall be considered one and the same agreement. Section 8.09 No Third Party Beneficiaries. Except as provided in Section 5.04, nothing in this Agreement, express or implied, is intended to confer upon any person or entity not a party to this Agreement any rights or remedies under or by reason of this Agreement. Section 8.10 Severability, Enforcement. Any term or provision of this Agreement that is invalid or unenforceable in any jurisdiction shall, as to that jurisdiction, be ineffective to the extent of such invalidity or unenforceability without rendering invalid or unenforceable the remaining terms and provisions of this Agreement or affecting the validity or enforceability of any of the terms or provisions of this Agreement in any other 25 jurisdiction. If any provision of this Agreement is so broad as to be unenforceable, the provisions shall be interpreted to be only so broad as is enforceable. Section 8.11 Certain Definitions. As used in this Agreement, the following terms shall have the meanings set forth in this section: "Affiliate" shall mean and include any corporation, partnership, association, trust or other Person who directly or indirectly controls or is controlled by, or is under common control with a referenced Person; provided, however, that the Company and its Subsidiaries shall not be deemed to be Affiliates of Bankers. "Executive Officers" means, with respect to the Company, David Howard, the President of the Company and Robert Gantley, the Chief Operating Officer of the Company. "Law" shall mean any federal, state, local or foreign law, statute, ordinance, rule, regulation, order, judgment or decree, administrative or judicial decision, and any other executive or legislative proclamation. "Person" shall mean and include any individual, partnership, corporation, trust, unincorporated organization, association or a government or any department, agency or political subdivision thereof. "Material Adverse Effect" shall mean any adverse change in the business, assets, liabilities, financial condition or results of operations of the Company and its Subsidiaries taken as a whole or any material adverse effect on the ability of the Company to perform its obligations under this Agreement or to consummate the transactions contemplated hereby. "Subsidiary" means any corporation, joint venture, partnership, limited liability company or other entity of which the Company, directly or indirectly, owns or controls capital stock (or other equity interests) representing more than FIFTY percent of the general voting power under ordinary circumstances of such entity. Section 8.12 Interpretation. (a) When a reference is made in this Agreement to a section or article, such reference shall be to a section or article of this Agreement unless otherwise clearly indicated to the contrary. (b) Whenever the words "include," "includes" or "including" are used in this Agreement, they shall be deemed to be followed by the words "without limitation." 26 (c) The words "hereof," "herein" and "herewith" and words of similar import shall, unless otherwise stated, be construed to refer to this Agreement as a whole and not to any particular provision of this Agreement, and article, section, paragraph, exhibit and schedule references are to the articles, sections, paragraphs, exhibits and schedules of this Agreement unless otherwise specified. (d) The plural of any defined term shall have a meaning correlative to such defined term, and words denoting any gender shall include all genders. Where a word or phrase is defined herein, each of its other grammatical forms shall have a corresponding meaning. (e) A reference to any party to this Agreement or any other agreement or document shall include such party's successors and permitted assigns. (f) A reference to any legislation or to any provision of any legislation shall include any amendment, modification or re-enactment thereof, any legislative provision substituted therefore and all regulations and statutory instruments issued thereunder or pursuant thereto. (g) The parties have participated jointly in the negotiation and drafting of this Agreement. In the event an ambiguity or question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by the parties, and no presumption or burden of proof shall arise favoring or disfavoring any party by virtue of the authorship of any provision of this Agreement. (last page before the signature page) 27 The parties have duly executed this Agreement and Plan of Merger as of the date first above written. BANKERS INSURANCE GROUP, INC. By: /s/ David B. Snyder -------------------------------------- Title: Vice President and Assistant Secretary -------------------------------------- BANKERS INSURANCE COMPANY By: /s/ David K. Meehan -------------------------------------- Title: President -------------------------------------- BANKERS SECURITY INSURANCE COMPANY By: /s/ David K. Meehan -------------------------------------- Title: President -------------------------------------- BANKERS MANAGEMENT CORPORATION By: /s/ David B. Snyder -------------------------------------- Title: Vice President and Assistant Secretary -------------------------------------- INSURANCE MANAGEMENT SOLUTIONS GROUP, INC. By: /s/ D.M. Howard -------------------------------------- Title: President/CEO -------------------------------------- 28 ANNEX A Certain Conditions of the Offer. Notwithstanding any other provisions of the Offer, the Company may not, and shall not be required to, accept for payment or, subject to any applicable rules and regulations of the SEC, including Rule 14e-1(c) under the Exchange Act (relating to Acquisition Subsidiary's obligations to pay for or return tendered Shares promptly after termination or withdrawal of the Offer), pay for, and may delay the acceptance for payment of or, subject to the restriction referred to above, the payment for, any tendered Shares, and may terminate or amend the Offer as to any Shares not then paid for, if: (a) the Minimum Condition has not been satisfied; or (b) at any time on or after the date of the Agreement and before any Shares are accepted for payment pursuant to the Offer, any of the following events shall occur: (i) there shall have been filed any suit, action or proceeding which: (A) challenges the acquisition by the Company of any Shares pursuant to the Offer or seeks to restrain or prohibit the making or consummation of the Offer or the Merger; (B) seeks to impose material limitations on the ability of the Company, or render the Company unable, to accept for payment, pay for or purchase some or all of the Shares pursuant to the Offer and the Merger; (C) otherwise is reasonably likely to have a Material Adverse Effect (except if the Material Adverse Effect is caused by or related to Bankers or its Affiliates); or there shall be any statute, rule, regulation, judgment, order or injunction enacted, entered, enforced, promulgated or deemed applicable to the Offer or the Merger, or any other action shall be taken by any governmental entity, that is reasonably likely to result, directly or indirectly, in any of the consequences referred to in clauses (A) and (B) of paragraph (i) above; or (ii) there shall have occurred: (A) any general suspension of trading in, or limitation on prices for, securities on the New York Stock Exchange or in the Nasdaq National Market System, for a period in excess of seventy-two consecutive trading hours; or A-1 (B) a declaration of a banking moratorium or any suspension of payments in respect of banks generally in the United States (whether or not mandatory); or (C) a commencement of a war, or other international or national calamity directly involving the United States; (D) any limitation (whether or not mandatory) by any United States or foreign governmental authority on the extension of credit by banks or other financial institutions; or (E) a change in general financial bank or capital market conditions which materially or adversely affects the ability of financial institutions in the United States to extend credit or syndicate loans; or (iii) any Material Adverse Effect (except any Material Adverse Effect caused directly or indirectly by Bankers) or any event, change, effect, fact or circumstance that would reasonably be likely to result in a Material Adverse Effect (except any Material Adverse Effect caused directly or indirectly by Bankers); or (iv) the Company Board of Directors or the Special Committee shall have: (A) withdrawn, modified or changed in a manner materially adverse to Bankers or Acquisition Subsidiary its approval of the Offer, this Agreement or the Merger; (B) recommended the approval or acceptance of an acquisition proposal from, or similar business combination with, a person or entity other than Bankers, Acquisition Subsidiary or their Affiliates; or (C) executed an agreement in principle or definitive agreement relating to an Acquisition Proposal from, or similar business combination with, a person or entity other than Bankers, Acquisition Subsidiary or their Affiliates; or (v) any of the representations and warranties of the Company set forth in Section 1.02 and Article III this Agreement shall not be true and correct in all material respects as of the date of this Agreement and as of the expiration date of the Offer (except to the extent that any such representation or representation speaks only as of a particular date); or (vi) the Company shall have failed to perform in any material respect any material obligation or to comply in any material respect with any A-2 material agreement or covenant of the Company to be performed or complied with by it under this Agreement; or (vii) all governmental consents necessary to the consummation of the Offer or the Merger, whether federal, state or local shall not have been obtained, other than consents the failure to obtain which would not have a Material Adverse Effect and other than consents to the Merger related directly or indirectly to Bankers or its Affiliates; or (viii) this Agreement shall have been terminated in accordance with its terms; which in the judgment of Bankers, or the Company reasonably exercised, in any such case, and regardless of the circumstances giving rise to such condition, makes it inadvisable to proceed with the Offer and/or with the acceptance for payment of or payment for Shares. Except for the Minimum Condition and the conditions in clause (b)(ii)(A)-(E) of this Annex A, the foregoing conditions may only be waived by written agreement of Bankers and the Company, provided, however, that if David K. Meehan or Robert M. Menke have actual knowledge as of the date hereof that a representation or warranty of the Company is not true and correct as of the date of this Agreement or as of the expiration date of the Offer, then the agreement of Bankers shall not be required for the waiver of the breach of such representation or warranty by the Company. The conditions in clause (b)(ii)(A)- (E) may be waived by the Company without the consent of Bankers. The Minimum Condition may only be waived by written agreement of Bankers, the Company and the Special Committee. A-3 ANNEX B LOAN DOCUMENTS [Note: Filed separately as Exhibits 10.4 through 10.7 to this Quarterly Report on Form 10-Q] EX-10.2 4 g77638exv10w2.txt INSURANCE SERVICES AGREEMENT Exhibit 10.2 INSURANCE ADMINISTRATION SERVICES AGREEMENT THIS INSURANCE ADMINISTRATION SERVICES AGREEMENT ("Agreement") is entered into by and between INSURANCE MANAGEMENT SOLUTIONS, INC. ("Vendor"), a corporation organized and existing under the laws of the State of Florida with its principal place of business located at 360 Central Avenue, St. Petersburg, Florida 33701, and FIRST INSURANCE COMPANY OF HAWAII, LTD ("Company"), an insurer existing under the laws of the State of Hawaii with its principal place of business located at 1100 Ward Avenue, Honolulu, HI 96814. WHEREAS, the Federal Emergency Management Agency ("FEMA") and the Federal Insurance Administration ("FIA") administer the National Flood Insurance Program ("NFIP") and the Company is an insurance company duly licensed to write flood insurance in the state or states to which this Agreement pertains and is approved by FIA to act as a Write Your Own Flood Carrier ("WYO Carrier") under the Write Your Own Flood Insurance Program ("WYO Flood Program"), a program offered under the NFIP; and WHEREAS, Vendor has been designated by FIA as a "qualified performer" for the provision of services to WYO Carriers under the NFIP; and WHEREAS, Company wishes to engage the services of Vendor to administer certain of the Company's obligations in the state(s) ("Applicable States") set forth herein; WHEREAS, Vendor wishes to provide such services as set forth herein. NOW THEREFORE, IN CONSIDERATION OF the mutual covenants and agreements hereinafter set forth, the parties hereto do covenant and agree as follows: I. AUTHORITY OF VENDOR. A. Appointment - Company hereby grants Vendor the authority to supervise and administer certain lines of Company's business ("Insurance Program"), as specified in Schedule A, in the states ("Applicable States") expressly set forth in Schedule A. Schedule A is attached to and hereto made a part of this Agreement. Vendor hereby accepts such appointment, and the grant of authority, and agrees to carry out the resulting duties and responsibilities to the best of its ability, knowledge, skill, and judgment, and in accordance with the highest reasonably attainable standards of quality generally utilized in the insurance and data processing industries. B. Authority - Company hereby grants Vendor the authority to act for and on behalf of Company in matters required for Vendor to properly supervise and conduct the handling of the aforesaid WYO Flood program, including the authority to collect and remit premiums, process applications and other forms, issue policies, and process claims, all in a manner consistent with, pursuant to and as authorized by the provisions of the National Flood Insurance Act of 1968 (as amended), the regulations of the NFIP, FIA, FEMA and the terms of this Agreement. II. RESPONSIBILITIES OF VENDOR. A. Policy Administration: Vendor shall administer Company's WYO Flood Program policies ("WYO Policy", or the plural, "WYO Policies") and in accordance therewith shall be responsible for the following policy administration functions: compliance with community eligibility/rating criteria; policyholder eligibility determination; WYO Policy issuance, WYO Policy endorsements; WYO Policy cancellations; WYP Policy correspondence; payment of agents' commissions on Company's behalf; and, the receipt, recording, control, timely deposit, and disbursements of premium funds in connection with the foregoing, all in accordance with the WYO Flood Program Financial Control Plan ("Financial Control Plan") requirements established by the FIA. Further, Vendor shall reply to written and telephone inquiries from policyholders and/or producers regarding any WYO Policy administered pursuant to this Agreement. B. Claim Service - Company shall have responsibility for the administration and processing of WYO Policy claims ("Claim") under this Agreement. Vendor shall provide the Systems required for ???. Vendor will be responsible for check disbursements and all required reporting to NFIP, FIA and FEMA. Vendor will provide Catastrophe Claim Services that are outlined in Schedule B of this Agreement. C. Statistical Reporting - Vendor shall prepare and submit, to FIA, monthly financial and statistical reports, reconciliations, certifications, and statistical tapes on Company's behalf, in accordance with WYO Flood Program Accounting Procedures and the Transaction Record Reporting and Processing Plan ("TRRP Plan"). Vendor shall submit copies of all monthly reports to the Company. D. Company Agents - Vendor shall provide to each Company Agent appointed under this Agreement, a limited license to use Vendor's FloodWriter(c)(tm) software program, and a current flood zone determination for any WYO Policy application submitted pursuant to this Agreement. Further, excluding records required to be maintained by Company in accordance with the FloodWriter(c)(tm) software license, Vendor shall keep appropriate records, in conformity with Internal Revenue Services regulations, for the purpose of preparing 1099 reports for Company Agent's commissions and Adjuster's fees paid by Vendor on behalf of Company. The expense for the above services has been incorporated in the Vendor's Monthly Service Fee. E. Time Standards - Vendor shall use it's best efforts to adhere to certain time standards for performance, as may be outlined and amended from time to time within the FEMA/FIA Financial Assistance/Subsidy Arrangement ("Arrangement"). III. PREMIUM COLLECTION AND ARRANGEMENT A. Banking Arrangement - Vendor and Company shall establish banking arrangements which comply with the Arrangement and other WYO Flood Program requirements, and which will provide for the establishment of a NFIP restricted account ("Restricted Account") with company as custodian, and a FEMA letter of credit ("Letter of Credit"), with additional accounts as needed to facilitate operations, all in conformity with FEMA/FIA guidelines. Company shall grant specific Vendor employees checksigning authority on any Restricted Account and the authority to initiate appropriate drawdowns against Company's Letter of Credit, in order for Vendor to act on Company's behalf in making 2 disbursements for Company liabilities established by the Arrangement, the WYO Flood Program, and this Agreement. All such authorizations shall be in writing and may be revoked, amended or modified at any time by Company upon thirty (30) days advanced written notice to Vendor. B. Premium Remittance - Vendor shall be liable to the FIA for any premiums Vendor has received on WYO Flood program business written under this Agreement. Vendor shall establish procedures for a timely deposit and remittance of funds to the U.S. Treasury via authorized automatic clearinghouse mechanism. Gross premium collected by Vendor, for WYO Flood program business written under this Agreement, shall be remitted to the FIA by Vendor net of the established NFIP Allowable Expenses. "Allowable Expenses" shall mean a WYO Carrier's operating and administrative expenses. C. Financial Data - Vendor shall maintain supporting documentation for all bank accounts over which it has authority. At least monthly, Vendor shall prepare financial data, by state, reflecting all debits and credits with respect to WYO Flood Program business written pursuant to this Agreement, including agents' commissions and Vendor's Servicing Fees paid, during the preceding quarter. IV. COMPANY ACCESS TO RECORDS Vendor agrees to permit Company or its duly appointed representatives, during the term of this Agreement, the right to visit, inspect, examine, copy, verify and audit, at Vendor's offices, any of the accounts, files, documents, books, reports and other records in possession or control of Vendor relating directly to the WYO Flood Program business covered by this Agreement. Such access shall be given during reasonable business hours and upon ten (10) days prior written notice to Vendor. Furthermore, at Company's expense, Vendor shall conduct a biennial audit of any and all WYO Flood Program business written by Company pursuant to this Agreement. To minimize the expense incurred by Company for such biennial audit, Vendor shall select an auditor, subject to Company's approval, and shall coordinate the biennial audit. V. EXPENSES AND FEES A. Service Fee - Company shall pay Vendor, on a monthly basis, a servicing fee ("Servicing Fee") as specified in the Schedule B, which schedule is attached to and hereto made a part of this Agreement. B. Claims Administration Fee - If Vendor provides claims administration services to Company, Company shall pay Vendor a claims administration fee ("Claims Administration Fee") as specified in the Schedule B. C. Additional Service Expenses - In accordance with the Arrangement, Company shall be liable for operating, administrative and production expenses, including but not limited to any State premium taxes, agents' commissions, or any other expense of whatever nature incurred by the Company in the performance of its obligations under the Arrangement. D. Vendor Expenses - In consideration of the Servicing Fees and Claims Administration Fees paid to Vendor, Vendor shall pay the general expenses of processing the WYO Flood program policies, including those of policy 3 administration, cash management, claims processing and financial and transactional reporting. E. WYO Flood Program Reimbursements - Any WYO Flood program Reimbursements made pursuant to the Arrangement, including, but not limited to, those for the unallocated loss expenses, shall be payable to Vendor upon receipt by Company. F. Marketing Goals - Company shall maintain responsibility for any risk, or shall be entitled to any reward, that may be associated with achieving or failing to achieve any marketing goal set by the FIA or FEMA. VI. ADDITIONAL SERVICES AND FEES A. Agent or Company Training - Upon Company request, Vendor will provide one training session per quarter, or four training sessions per year, to company or Company's agents. Company shall provide the training facility and pay Vendor reasonable per diem and travel expenses incurred. B. Marketing Material - Company may use Vendor's previously developed marketing or promotional materials, which Vendor may customize and produce for Company at company's expense. C. Additional Fees and Service - Additional service not defined in this Agreement may be provided as mutually agreed upon between the Company and Vendor in writing. VII. CONFIDENTIALITY OF DATA AND INFORMATION. A. Confidential and Proprietary Information - Vendor and Company acknowledge that any and all information concerning the other's business is confidential and proprietary information ("Confidential Information") and neither party shall permit the duplication, use, or disclosure of any such Confidential Information to any person, other than its own employees, agents or representatives who must have such information for the performance of obligations hereunder, unless such duplication, use, or disclosure is specifically authorized in writing by the other party. Confidential information is not meant to include any information which at the time of disclosure is generally known to the public and/or the insurance industry prior to the disclosure. B. Trademarks, Service Marks, Trade Names - Neither party shall use or duplicate the name(s), trademark(s), servicemark(s), or trade name(s) (whether registered or not) of the other party in public releases or advertising or in any other manner unless such use or duplication is specifically authorized in writing by the other party, except that Vendor may include Company's name in a list of clients/customers without such authorization. C. Agreement Terms - Neither party shall disclose information as to specific terms of this Agreement, in particular any details about the work performed or the Service Fees or Claims Administration Fees paid, without prior written consent of the other party. D. Company's Records - Vendor shall maintain system integrity and data security necessary to protect Company's records and data from loss and damage and to protect against unauthorized disclosure of Company's Confidential Information as described in Section VII(A) above. 4 E. Public Disclosure - The disclosure restrictions provided in this section shall be extinguished at the time and to the extent that the Confidential Information becomes generally available to the public domain without the fault of either Vendor or Company. VIII. COMMENCEMENT AND TERMINATION. A. Term of Agreement - This Agreement shall become effective on the date that this document is executed by Company and by Vendor and shall have a minimum term ("Initial Term") of thirty six (36) full calendar months unless terminated earlier pursuant to this section VIII (C) of this Agreement. At the conclusion of the Initial Term ("Termination Date"), this Agreement shall be renewed and extended for an additional renewal term of thirty-six (36) months unless otherwise terminated pursuant to this Section VIII (C). B. Termination Without Cause - This Agreement may be terminated, without cause, at any time after the Initial Term by either party upon written notice of termination to the other, not less than ninety (90) days prior to the Termination Date. C. Termination for Cause - Any party may immediately terminate this Agreement for cause upon written notice to the other party in the event of: 1. Bankruptcy, receivership, of either party, regardless of whether any of these occur voluntarily or involuntarily; or 2. Failure by any party to fulfill a material obligation under this Agreement, provided that such party has been notified in writing of such failure and such failure continues without cure for a period of ninety (90) days after written notice thereof. D. Accounting - Upon termination of this Agreement, Vendor shall fully account to Company for all of its responsibilities and activities pursuant to this Agreement. IX. LIABILITY. A. Limit of Liability - In no event shall Vendor's liability for breach of this Agreement or any of its provisions exceed the Company's earnings under this agreement for the three months immediately preceding the breach. Vendor shall not be liable for any lost profits, business goodwill, or other consequential, punitive, special or incidental damages incurred by Company. B. Vendor Indemnification - Vendor shall indemnify, defend and hold harmless Company, its officers, and directors from any liability, cost, loss, fine, penalty, claim, demand, damage or expense, including attorney's fees, incurred as a direct result of any act, error or omission by Vendor, or incurred as a result of any material breach of Vendor's obligations under this Agreement. Vendor's indemnification under this paragraph shall be in accordance with the limitations set forth in this Agreement. C. Company Indemnification - Company shall indemnify, defend and hold harmless Vendor, its officers, and directors from any liability, cost, loss, fine, penalty, claim, demand, damage or expense, including attorney's fees, incurred as a 5 direct result of any act, error or omission by Company or incurred as a result of any material breach of Company's obligations under this Agreement. Company's indemnification under this paragraph shall be in accordance with the limitations set forth in this Agreement. D. Notice of Claim - All parties agree to promptly give the other notice upon being notified or becoming aware of an allegation or claim which could give rise to a claim under this section. X. GENERAL AGREEMENTS A. Applicable Law - This Agreement in all matters arising thereunder shall be governed by and determined in accordance with the laws of the State of Florida. Venue for any actions arising hereunder shall be in a State court of competent jurisdiction in Pinellas County, Florida. Notwithstanding the foregoing, this section shall not apply to any matter that relates specifically to and involves an insured party, including but not limited to Claims filed by an insured. B. Entire Agreement - This Agreement, and any exhibits, schedules or addenda attached hereto, contain all of the prior oral and/or previously written agreements, representations, and arrangements between the parties hereto. There are no representations or warranties other than those set forth herein. No change or modification of this Agreement shall be valid unless the same shall be in writing and signed by all of the parties hereto. All schedules, addendum of any kind, or attachments to this Agreement shall be made a part of this Agreement and shall be subject to all terms and conditions of this Agreement. C. Attorney's Fees - If either party should bring a Court action alleging breach of this Agreement or seeking to enforce, rescind, renounce, declare void or terminate this Agreement or any provisions thereof, the prevailing party shall be entitled to recover all of its legal expenses, including reasonable attorney's fees and costs (including legal expenses for any appeals taken), and to have the same awarded as part of the judgment in the proceeding in which such legal expenses and attorney's fees were incurred. D. Company Warranties - Company warrants that it and that it is licensed to engage in the insurance business in all jurisdictions in which it has duly authorized Vendor to issue policies or other insurance coverage in the Company's name. Further, Company warrants to Vendor that it will comply with the laws of the state or states covered by this Agreement and with the rules and regulations of all regulatory authorities having jurisdiction over Company's activities, and shall, whenever necessary, maintain at its own expense all required licenses to transact business in such states. E. Vendor Warranties - Vendor warrants to Company that it is duly authorized and incorporated to transact the business of servicing insurance companies. Further, Vendor warrants to Company that it will comply with the laws of the state or states covered by this Agreement and with the rules and regulations of all regulatory authorities having jurisdiction over Vendor's activities, and shall, whenever necessary, maintain at its own expense all required licenses other than agents licenses unless specifically noted in Schedule A of this agreement, to transact business in such states. 6 F. Invalidation - Should any part of this Agreement for any reason be declared invalid, such decision shall not effect the validity of any remaining portion, which remaining portion shall remain in full force and effect as if the Agreement had been executed with the invalid portion thereof eliminated. It is, therefore, declared the intention of the parties hereto that each of them will have executed the remaining portion of this Agreement without including therein any such part, parts or portion which may, for any reason, be hereafter declared void. G. Construction of Agreement - The parties acknowledge that each party and its counsel have reviewed and revised this Agreement and that the normal rule of construction to the effect that any ambiguities are to be resolved against the drafting party shall not be employed in the interpretation of this Agreement or any amendments or exhibits hereto. H. Miscellaneous - Words of a gender used in this Agreement shall be held to include any other gender, the words in a singular number held to include the plural, when the sentence so requires. Section headings are intended for purposes of description only and shall not be used for purposes of interpretation of this Agreement. I. Notices - Any and all notices, designations, consents, offers, acceptances, or any other communication provided for herein shall be given in writing by hand delivery, by overnight carrier, by registered or certified mail or by facsimile transmission and shall be addressed as follows: As to Company: First Insurance Company of Hawaii, LTD 1100 Ward Avenue Honolulu, HI 96814 (808) 545-3262 Attention: Antonio Abad, Assistant Vice President As to Vendor: Insurance Management Solutions, Inc. 360 Central Avenue St. Petersburg, FL 33701 Fax Number: (813) 823-6518 Attention: Kelly King, Senior Vice President Notices sent by hand delivery shall be deemed effective on the date of hand delivery. Notices sent by overnight carrier shall be deemed effective on the next business day after being placed into the hands of the overnight carrier. Notices sent by registered or certified mail shall be deemed effective on the third business day after being deposited into the post office. Notices sent by facsimile transmission shall be deemed to be effective on day when sent if sent prior to 4:30 p.m. (the time being determined by the time zone of the recipient) otherwise they shall be deemed effective on the next business day. (The remainder of this page is intentionally left blank) 7 IN WITNESS WHEREOF, the parties hereto by their respective duly authorized representatives have executed this Agreement to be effective as of the 22ND day of MARCH, 1999.

"Vendor": "Company": INSURANCE MANAGEMENT SOLUTIONS, INC. FIRST INSURANCE COMPANY OF HAWAII, LTD. By: /s/ Kelly R. King By: /s/ Ernie L. Moore ---------------------------------------- ----------------------------------------- As its: SR. V.P. As its: SR. VICE PRESIDENT ------------------------------------ ------------------------------------- Date: 3/17/99 Date: 3-22-99 -------------------------------------- ---------------------------------------

8 SCHEDULE A APPLICABLE STATES AND INSURANCE PROGRAM Company hereby authorizes Vendor to supervise and administer its Insurance Program for the following line(s) of business in the following "Applicable States": LINES OF BUSINESS: WYO Flood Insurance APPLICABLE STATES: Hawaii 9 SCHEDULE B FEES POLICY ADMINISTRATION Company shall pay Vendor a monthly Servicing Fee of 8% Direct Written Premium, for all Administration services rendered by Vendor pursuant to this Agreement. The Service Fee shall be retained from the Restricted Account as an Allowable Expense payable to Vendor. CLAIM ADMINISTRATION Company shall pay Vendor the following Claim Administration Fees: Claim System Services: Vendor shall retain .25% of Direct Earned Premium for the Claim System utilization and maintenance, training, check disbursement and claim reporting requirements as outlined in the WYO Arrangement. Catastrophe Services: Vendor will provide Full Catastrophe Flood Claim Services. Vendor shall retain the full 3.3% Administration Fee and Fee Schedule for Catastrophe Services. The Claim Administration Fees shall be retained from the Restricted Account as an Allowable Expense payable to Vendor. 10 ADDENDUM TO THE INSURANCE ADMINISTRATION SERVICES AGREEMENT THIS ADDENDUM TO THE INSURANCE ADMINISTRATION SERVICES AGREEMENT (hereinafter, "Addendum") dated this ___ day of ______________, 1999, by and between INSURANCE MANAGEMENT SOLUTIONS, INC. ("Vendor"), and FIRST INSURANCE COMPANY OF HAWAII, LTD. ("Company"), hereby modifies and supplements that INSURANCE ADMINISTRATION SERVICES AGREEMENT (hereinafter, "Agreement"), by and between the Company and Vendor, effective on March 22, 1999, and shall be attached to and form a part of the Agreement. I. Claim Service - Article II, Paragraph B of the Agreement is hereby deleted and replaced with the following: Claim Service - Vendor shall have responsibility for the administration and processing of WYO Policy claims ("Claim") under this Agreement. Vendor shall provide "Full Claim Service", which shall be defined as processing and administering a Claim from the Claim's inception until closing. The Claim shall be processed and administered in accordance with the following procedures: A. Processing. Vendor shall provide Claims processing in accordance with the Arrangement and the Financial Control Plan. Vendor may also rely on information and direction contained in the WYO Flood Program Claims Manual, the FEMA Adjuster Manual, the Flood Insurance (Agent's) Manual, the standard flood insurance policy, the WYO Operational Overview, and/or other WYO Flood Program instructional material. B. Catastrophe Office. A catastrophe team may be engaged at the discretion of the Vendor to provide Claims support. Vendor shall coordinate activities and shall provide information to the FIA or its designee whenever a flood insurance catastrophe office is established. II. Schedule B - Schedule B of the Agreement is hereby modified as follows: Catastrophe Services: Vendor shall retain 3.3% of the net Claim after application of the deductible. III. General Agreement - All provisions within the Agreement, not inconsistent with this Addendum, shall remain in effect and are enforceable. IN WITNESS WHEREOF, the parties have executed this Agreement or caused this Agreement to be duly executed by their corporate officers on the dates as indicated hereafter.

COMPANY: VENDOR: FIRST INSURANCE COMPANY OF HAWAII, LTD. INSURANCE MANAGEMENT SOLUTIONS, INC. By: /s/ Ernest H. Fukeda, Jr. By: /s/ C. Breakiron -------------------------------------- --------------------------------------- As its: VICE PRESIDENT As its: CFO ---------------------------------- ----------------------------------- Date: 1-28-2000 Date 1/30/00 ------------------------------------ --------------------------------------

Addendum to Insurance Administration Services Agreement This addendum effective July 26, 2002 is hereby attached to and made a part of the Insurance Administration Services Agreement dated March 22, 1999 between Insurance Management Solutions, Inc. and First Insurance Company of Hawaii, Ltd. The Insurance Administration Services Agreement is amended as follows: Section VIII. Commencement and Termination. A. Term of Agreement- The following shall be deleted: At the conclusion of the Initial Term ("Termination Date"), this Agreement shall be renewed and extended for an additional renewal term of thirty-six (36) months unless otherwise terminated pursuant to this Section VIII(C). And replaced with: At the conclusion of the Initial Term ("Termination Date"), this Agreement shall be renewed and extended for an additional term of twelve (12) months unless otherwise terminated pursuant to this Section VIII(C). In all other respects, the Insurance Administration Services Agreement dated March 22, 1999 shall remain unchanged. IN WITNESS WHEREOF, the parties have executed or caused this aforementioned Agreement as amended by this addendum to be duly executed by its corporate officers on the dates as indicated hereafter. Company: Vendor: First Insurance Company of Hawaii, Ltd. Insurance Management Solutions, Inc. By: /s/ Antonio Abad By: /s/ D. M. Howard ------------------------------------- ---------------------------------- As its: VICE PRESIDENT As its: PRES/CEO -------------------------------- ----------------------------- Date: JULY 26, 2002 Date: July 31, 2002 ---------------------------------- ------------------------------- EX-10.3 5 g77638exv10w3.txt SECOND AMENDMENT TO INSURANCE SERVICES AGREEMENT Exhibit 10.3 SECOND AMENDMENT TO INSURANCE ADMINISTRATION SERVICES AGREEMENT This SECOND AMENDMENT ("Amendment"), effective as of August 12, 2002, is made to that certain INSURANCE ADMINISTRATION SERVICES AGREEMENT (the "Agreement") dated October 1, 2001 by and between INSURANCE MANAGEMENT SOLUTIONS, INC. ("IMS"), a corporation organized and existing under the laws of the State of Florida with its principal place of business located at 801 94th Avenue North, St. Petersburg, Florida, and each of BANKERS INSURANCE COMPANY ("BIC'), BANKERS SECURITY INSURANCE COMPANY ("BSIC") and FIRST COMMUNITY INSURANCE COMPANY ("FCIC"), herein collectively referred to as "Customer", all having their principal place of business at 360 Central Avenue, St. Petersburg, Florida 33701, which Agreement was amended by that certain First Amendment dated July 1, 2002 (collectively with the Agreement is hereinafter referred to as the "Agreement"). WHEREAS, IMS is engaged by Customer to provide certain policy administration services and claims administration services, respectively, as provided in the Agreement; and WHEREAS, Customer and IMS mutually desire to add certain services relating to Information Technology ("IT") Services to be provided by IMS to Customer including the fees associated with such services, as the same are more specifically set forth herein. NOW THEREFORE, IN CONSIDERATION OF the mutual covenants and agreements hereinafter set forth, and for the considerations set forth in the Agreement, the parties hereto hereby covenant and agree as follows: 1. Insurance Administration Services. The "Insurance Administration Services" described in the Agreement will now include the services set forth on "EXHIBIT IV" attached hereto and made a part hereof, which EXHIBIT IV describes the "IMS COVERAGE OF CUSTOMER-OWNED IT SERVICES". Both EXHIBIT I and EXHIBIT II of the Agreement shall remain as is, without modification. Provided, however, the following sentence is hereby deleted in its entirety from Revised Exhibit I attached to the First Amendment, to wit: 4) TELECOM SERVICES AND EQUIPMENT. IMS shall provide use of the telecom equipment in consideration of Customer administrating the system and providing technical support. 2. Fees and Expenses. In addition to describing such services, EXHIBIT IV contains the "Fees" associated with and applicable to the IMS COVERAGE OF CUSTOMER-OWNED IT SERVICES. The "REVISED SCHEDULE B" attached to the First Amendment to Insurance Administration Service Agreement shall remain as is, without modification, but shall not be applicable to the services described on EXHIBIT IV. 3. All Other Terms. Except as specifically modified by the terms of this Second Amendment, all other terms, definitions, conditions, exhibits and schedules contained in or otherwise attached to the Agreement shall remain in full force and effect. 1 IN WITNESS WHEREOF, the parties hereto by their respective duly authorized representatives have executed this Second Amendment as of the date and year first set forth above. - -------------------------------------------------------------------------------- "IMS" INSURANCE MANAGEMENT SOLUTIONS, INC. By: s/s DM Howard --------------------------------- As its: Pres/CEO ---------------------------- - -------------------------------------------------------------------------------- "CUSTOMER" BANKERS INSURANCE COMPANY By: s/s David K. Meehan --------------------------------- As its: President ---------------------------- BANKERS SECURITY INSURANCE COMPANY By: s/s David K. Meehan --------------------------------- As its: President ---------------------------- FIRST COMMUNITY INSURANCE COMPANY By: s/s David K. Meehan --------------------------------- As its: President ---------------------------- - -------------------------------------------------------------------------------- 2 EXHIBIT IV TO INSURANCE ADMINISTRATION SERVICES AGREEMENT IMS COVERAGE OF CUSTOMER-OWNED IT SERVICES SECTION I. IT OUTSOURCING SERVICES, UNLESS OTHERWISE DESCRIBED HEREIN, IMS SHALL PROVIDE THE FOLLOWING SERVICES TO CUSTOMER BASED UPON THE SERVICES FEE DESCRIBED FOR EACH. - ------------------------------------------------------------------------ SERVICES: SERVICES FEE - ------------------------------------------------------------------------ Desktop Support(1) $37.00 per employee per month; monthly minimum of $9,250.00 - ------------------------------------------------------------------------ Server Support(2) $7,841 per month - ------------------------------------------------------------------------ Telecom Support(3) $31.00 per employee per month; monthly minimum of $7,750.00 - ------------------------------------------------------------------------ Telecom Hosting(4) $2,000 per month - ------------------------------------------------------------------------ Application Software Support(5) $43,490 per month - ------------------------------------------------------------------------ Statistical Reporting(6) $2,500 per month - ------------------------------------------------------------------------ (1) Desktop Support (on-site support to be provided from 8:00 AM to 6:00 PM, Monday through Friday and on-call after regular business hours, including holidays): - Initially covers Customer's 360 employees located in St. Petersburg, Florida that are desktop users and require desktop support - This service fee may be adjusted each quarter based upon the number of Banker's employees on current payroll at the beginning of such quarter. Either party may request an adjustment (that is, an increase in fees or decrease in fees), based upon a change in the number of Customer's employees by providing written notice to the other party at the beginning of each quarter. Should either party fail to request an adjustment for a particular quarter, the fee shall remain as-is for the remainder of that quarter. Provided, request for an adjustment may be made at the beginning of the next quarter (the foregoing is called the "Employee Adjustment") - IMS will provide: - Help Desk Services - Intranet enabled support ticket request capability - Support telephone line - Problem resolution at the desktop - Customer will provide: - Desktop Hardware for each associate covered - Desktop Software for each associate covered (2) Server Support - Covers 26 (plus or minus 3) Customer-owned servers, including: - BIGDC01 - BIGDC02 - CADSRV01 - CITRIXSRV01 - DB2DEV - DB2DEV02 - DEPTSRV02 - DUNSRV01 - EPSSRV01 - FAPSRV01 - INTSRV01 - ISASRV01 - ISASRV03 - RPTSRV01 - SQLSRV01 - STRUSTSRV 3 EXHIBIT IV TO INSURANCE ADMINISTRATION SERVICES AGREEMENT - CONTINUED - SVCSRV01 - SVCDEV01 - TSMSRV01 - WEBSRV01 - INTDEV01 - INTDEV02 - INTDEV03 - WEBDEV02 - IMGSRV01 - IBM AS/400 720 Model - Customer will provide for Customer-owned servers: - Server Hardware - Server Software - Server Space Rental - Electrical Power - Backbone and other Necessary connectivity - Access to secured computer room; provided IMS shall be responsible for all maintenance and security associated with the servers located in such room - IMS will provide (to be provided 24-hours each day, seven (7) days per week, including holidays): - Help Desk Support - Network Access - Server Availability - Storage/Backup/Archive/Retrieval (3) Telecom Support (on-site support to be provided from 8:00 AM to 5:00 PM, Monday through Friday and on-call after regular business hours, including holidays) for all current system configuration (All additional changes and enhancements based upon time and materials): - Initially covers Customer's 400 employees located in St. Petersburg, Florida that are telecom users and require support - The fees for this service is subject to the "Employee Adjustment" described above - Telecom Personnel to support the existing Customer telecom infrastructure - Customer will provide - Telecom Interconnectivity for Customer telecom infrastructure - Telecom software to support Customer telecom infrastructure (4) Telecom Hosting (on-site support to be provided from 8:00 AM to 5:00 PM, Monday through Friday and on-call after regular business hours, including holidays) for all current system configuration (All additional changes and enhancements based upon time and materials): - IMS will provide Northern Telecom compliant existing handsets for 400 Customer associates - IMS will provide Northern Telecom PBX Hardware - IMS will provide PBX Availability - IMS will provide PBX Software (current system configuration) - Customer will provide Hosting Space Rental - Access to secured computer room; provided IMS shall be responsible for all maintenance and security associated with the servers located in such room (5) Application Software Support (on-site support to be provided from 8:00 AM to 5:00 PM, Monday through Friday and on-call after regular business hours, including holidays) for all current system configuration (All additional changes and enhancements based upon time and materials): - Companion Flood Software Support - BOP Software Support - Excess Flood Software Support - Contingency Commission Software Support 4 EXHIBIT IV TO INSURANCE ADMINISTRATION SERVICES AGREEMENT - CONTINUED - Customer Internet Site Support - Customer Intranet Site Support - Customer Month-End Software Support - Human Resources ADP Software Support - Vector Software Support - CPP Software Support - Commercial Auto Software Support - Vanguard Book-Transfer Software Support - Various Current Manual Line Software Support - Various Current Other Products, that are or were in "run-off" phase attached hereto as Exhibit IV - A (the "Run-off Lines of Business") (6) Statistical Reporting for current system configurations. All additional changes and enhancements based upon time and materials. IMS shall provide: a. Commercial Lines Statistical Call Support: i. Quarterly TX ISO - QTR Miscellaneous Commercial Experience ii. NAII Commercial Fire & Allied Lines/FR BIC-FCIC iii. Annual NAII General Liability/GLA BIC-FCIC-BSIC iv. NAII Professional Liability/MPA BIC v. NAII Business owners/BO BIC-BSIC vi. NAII Farm owners/FM vii. NAII Burglary/BU BIC-FCIC viii. NAII Fidelity & Surety/F&S BIC-BSIC ix. NAII Glass/GS BIC-FCIC x. NAII Inland Marine/IM xi. Annual NAII Auto/AU Excluding NC BIC-FCIC xii. NAII Personal Lines/DP BIC-BSIC-FCIC xiii. VOLEX xiv. NC VOLEX xv. NAII NC Quarterly Auto xvi. TICO Market Report xvii. SCHWHUA Voluntary Credit Report xviii. FWUA Voluntary Credit Report xix. Alabama Disaster Response Plan xx. NY Insurance Disaster Coalition xxi. GA Cancel/Non-Renewal Forms GID-44 GID-45 xxii. TX ISO - Quarterly Liability Experience xxiii. NAII SC AIPEX xxiv. CA PP Liability Auto Report SAL/AR xxv. Home State - TX Theft Report xxvi. FHCF Data Call, and b. Homeowner and Auto Statistical Call Support: i. CA PP Auto Physical Damage Experience SAP ii. Exposure Reporting - Monthly Call iii. FHCF Data Call iv. Home State - Quarterly Experience Report v. Home State - Commercial Auto Call vi. Home State - Policy Count vii. Home State - Quarterly Market Report viii. Home State - TX Theft Assessment Report ix. NAII FL AIP x. NAII FL AIPEX xi. NAII SC AIP xii. QUASR xiii. SC AIPSO xiv. TX ISO- F&S 5 (7) General Conditions: a. Customer shall provide necessary personnel space for IMS employees servicing Customer pursuant to this Agreement, and b. Customer shall provide adequate parking spaces for IMS employees servicing Customer pursuant to this Agreement, based upon Customer's parking policies and procedures, as revised from to time. 6 EXHIBIT IV - A "RUN-OFF LINES OF BUSINESS" Auto Service Border Trucking Commercial Auto Cycle Warranty Day Care Employers Liability Fidelity Firearms Inland Marine Marine Industries Contingent P & I Marine Omnibus Real Estate Appraisers E & O Restaurant-Standard Lines Surety Bonds Towing Trucking Senior Yacht Special Restaurant Discontinued Lines Contract Surety Lensurance Occupational Accident Policy Ocean Marine Workers Compensation Personal Auto GA (CA, OR, WA) Personal Auto (FL & SC) Business Auto (BUTI) Personal Auto (BUTI) Homeowners (Heartland) Dwelling Fire (Heartland) Non-Standard Auto (Heartland) Preferred Auto (Heartland) All Prior Products previously serviced in "run-off" 7 EX-10.4 6 g77638exv10w4.txt CREDIT AND SECURITY AGREEMENT Exhibit 10.4 CREDIT AND SECURITY AGREEMENT THIS CREDIT AND SECURITY AGREEMENT (herein, "Agreement") is made effective this 15 day of August, 2002 between INSURANCE MANAGEMENT SOLUTIONS GROUP, INC., a Florida corporation (herein, "Lender") and BANKERS INSURANCE GROUP, INC., a Florida corporation (herein, "BIG") and BANKERS UNDERWRITERS, INC., a Florida corporation (herein, "BUI") (BIG and BUI herein, collectively "Borrower") (herein Lender and Borrower collectively, "Parties" or individually "Party"). RECITALS: WHEREAS, Lender is a corporation duly organized under the laws of the State of Florida; and WHEREAS, Borrower is a corporation duly organized under the laws of the State of Florida; and WHEREAS, in order to provide Borrower with funds, Borrower wishes to borrow the aggregate sum of up to Seven Million and No/100 dollars ($7,000,000.00) (the "Loan") from Lender, which will be secured by the Collateral (as defined below); and WHEREAS, Lender wishes to make the Loan to Borrower; and NOW, THEREFORE, IN CONSIDERATION of Lender's agreement to make the Loan to Borrower, all in accordance with the terms and conditions of this Agreement, as well as for other good and valuable consideration, the Parties hereto do covenant and agree as follows: SECTION 1. RECITALS. The statements contained in the recitals of fact set forth above (the "Recitals") are true and correct, and the Recitals by this reference are made a part of this Agreement. SECTION 2. EXHIBITS. The exhibits attached to this Agreement are by this reference made a part of this Agreement. SECTION 3. DEFINITIONS. For the purpose of this Agreement, the following terms shall have the following meanings: a) "Affiliate" shall mean any corporation, partnership, association, trust or Person which or who directly or indirectly controls or is controlled by, or is under common control with the Borrower. b) "Borrower" shall mean both Bankers Insurance Group, Inc., a Florida corporation and Bankers Underwriters, Inc., a Florida corporation. c) "Collateral" shall refer to the "Flood Book" (as defined below) being assigned by BUI to Lender pursuant to the Collateral Assignment of Flood Book and this Agreement. d) "Corporate Principal" shall mean any shareholder, director, or officer of Borrower. e) "Event Of Default" shall mean any of the events or conditions described in Section 11 below. 1 of 10 f) "Flood Book" shall have the definition assigned to such term in the Collateral Assignment of Flood Book. g) "Indebtedness" shall mean all principal, interest and other charges arising under the Loan and the Revolving Line of Credit Master Promissory Note ("Note") being executed by Borrower in favor of Lender on or about the date hereof. h) "Loan" shall mean the line of credit established pursuant to Section 4 hereof. i) "Loan Documents" shall mean each of the following documents all dated of even date herewith to establish the Loan - Note, Collateral Assignment of Flood Book, UCC-1 Financing Statement, Further Assurance and Compliance Agreement and this Agreement. j) "Obligation" or "Obligations" shall mean any and all Indebtedness, liabilities and obligations of Borrower whatsoever under the Loan Documents. k) "Person" shall mean and include any individual, partnership, corporation, trust, unincorporated organization or a government or any department or agency thereof. l) "Subsidiary" shall mean any corporation of which a majority, in vote or in value, of every class of stock, at the time as of which any determination is being made, is owned by the Borrower either directly or through Subsidiaries. SECTION 4. LOAN. a) Amount. Upon the execution of this Agreement and in compliance with its terms and conditions, Lender agrees to make a revolving loan to Borrower up to a maximum principal amount equal to Seven Million and No/100 dollars ($7,000,000.00). b) Purpose. Funds received under the Note shall be used by Borrower exclusively: (i) to payoff a $5,000,000.00 loan and other indebtedness outstanding from BIG to AMS Staff Leasing ("AMS"), by virtue of a loan made by AMS to BIG on or about June 10, 2002, and all other indebtedness associated with that Loan; and (ii) for other working capital needs of Borrower as determined from time to time by Borrower. c) Grant of Security Interest. BUI does hereby grant to Lender a first priority security interest in and to the Flood Book as security for the repayment of all sums advanced on the Loan and for the performance by Borrower of all covenants and agreements under the Loan Documents in accordance with their terms and conditions. SECTION 5. TERM OF AGREEMENT. a) This Agreement shall be effective upon the execution hereof, and shall continue in full force and effect until the Loan is paid in full. 2 of 10 SECTION 6. CONDITIONS PRECEDENT. Prior to the first advance by Lender to Borrower pursuant to this Agreement and as a condition precedent to any of Lender's other obligations under this Agreement, Borrower shall execute and deliver to Lender or shall cause to be executed and delivered to Lender each of the following: a) Promissory Note. The Note which shall include a Waiver of Jury Trial provision; b) The Loan Documents; c) Perfection. Such financing statement(s), security agreements, and other documents and instruments as Lender may reasonably require from time to time to perfect any and all security interests granted by BUI to Lender pursuant to this Agreement or pursuant to any other security agreement(s) executed by Borrower to induce Lender to make the Loan herein described; d) Resolutions. The good and sufficient Resolution of the Board of Directors of the Borrower authorizing Borrower to enter into the transaction contemplated by this Agreement. Prior to the first advance and at the time of each advance by Lender to Borrower pursuant to this Agreement and as a condition precedent to any of Lender's other Obligations under this Agreement, the following shall be true: e) No Default. There shall be no Event of Default hereunder, nor any event of default existing under any of the Loan Documents. f) No Change. There shall have been no material adverse change in the Borrower or the Collateral. g) No Litigation. There shall be no pending litigation or administrative action or known threat thereof challenging the Loan transaction or the Agreement and Plan of Merger between Lender, BIG and others (the "Merger Agreement"). h) True and Correct. All representations and warranties of Borrower in and all of the Loan Documents shall be true and correct. i) Other Documents. Lender shall have received from Borrower all other documents reasonably requested by Lender. SECTION 7. AFFIRMATIVE COVENANTS. Borrower hereby covenants with Lender that for so long as any Obligations remain outstanding Borrower shall: a) Corporate Existence. Do or cause to be done all things necessary to keep in full force and effect its corporate existence and all rights, franchises, licenses, authorizations, permits and qualifications to carry on business in all jurisdictions where such qualifications may be necessary; b) Compliance with Law. Remain in compliance with all applicable laws of the jurisdictions within which Borrower conducts its business. c) Payment of Taxes. Pay all federal, state and local taxes as the same become due. d) Financial Statements. Deliver to Lender, the following: 1) Unaudited Financials -- Monthly. As soon as practicable, and in any event within thirty (30) days after the end of each calendar month, furnish to Lender a monthly unaudited consolidated financial statement of BIG, including balance sheets and income statements, for the calendar month just ended, and for the calendar year to date, certified by a duly authorized officer of - -------------------------------------------------------------------------------- 3 of 10 BIG; 2) Unaudited Financials - Annual. As soon as practicable, and in any event within one hundred twenty (120) days after the end of each fiscal year, furnish to Lender, the unaudited consolidated financial statement for BIG, including balance sheets and income statements, prepared in accordance with generally accepted accounting principles and practices applied on a basis consistently maintained throughout the period involved and certified by an authorized officer of BIG; and 3) Data. Promptly, but in all events within ten (10) days of Lender's request, such financial statements, reports, certificates, lists of customers (showing names, addresses and amounts owing) and other data concerning accounts, contracts, collections, inventory and other matters as Lender may from time to time request. e) Notice. Give prompt written notice to Lender upon becoming aware of the occurrence of any Event of Default or event which, by passage of time or the giving of notice or both would constitute an Event of Default; f) Free Collateral. Keep Collateral free from all liens, encumbrances and security interests and pay and discharge when due all taxes, levies and other charges upon it and upon the goods evidenced by any documents constituting Collateral and defend it against all claims of any kind; g) Access. Provide access to accounting and business records of Borrower which will include, but not be limited to, access and substantive dialogue with Borrower's accountants, attorneys, bank or other financial institution and any other party or parties with which the Borrower has had or may have any dealings. Said dialogue may encompass the affairs, finances and accounts of Borrower including but not limited to any matter or aspect pertaining to any and all business transactions that have taken place or that may be contemplated at some future date. Borrower shall hold harmless, indemnify, release and authorize any and all such parties that may care to express an opinion regarding the business of the Borrower and the transactions engaged therein; h) Financial Condition. Notify Lender immediately, but in any event within five (5) days after obtaining knowledge of any fact or facts which might materially and adversely affect the assets, business operations, properties, income or condition (financial or otherwise) of the Borrower or the Obligations or authority of Borrower to perform its Obligations under any Loan Document; i) Notify of Action or Suit. Notify Lender immediately, but in any event within five (5) days after obtaining knowledge that Borrower is a party, or may be threatened to be made a party, to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative; j) Pay Debts - Indemnity. Pay when due (or within applicable grace periods) all Indebtedness due third Persons, except when the amount thereof is being contested in good faith by appropriate proceedings and with adequate reserves therefore set aside on the books of Borrower for the payment of such indebtedness. If Borrower shall default in the payment of any principal (or installment thereof) of, or interest on, any such Indebtedness, Lender shall have the right, in its sole discretion, to pay such interest or principal on behalf of Borrower; provided, however, Borrower shall indemnify Lender in full for any such amount; k) New Location. Notify Lender thirty (30) days in advance of any change in the jurisdiction of its organization, the location of any of its businesses or the establishment of any new, or the discontinuance of any existing, place of business; and l) Books of Account - Inspections. Maintain books of account in accordance with general accounting practices, and for purposes of determining Borrower's compliance with this Agreement. If no 4 of 10 Event of Default exists or is continuing, Lender shall have the right, at Lender's expense, to inspect any of the corporate books and financial records at such reasonable times as Lender may request. If any Event of Default exists, Lender may, at the expense of the Borrower, inspect the corporate books and financial records at all such reasonable times and as often as may be requested by the Lender. SECTION 8. NEGATIVE COVENANTS. Borrower hereby covenants with Lender that for so long as any Obligations remain outstanding and unless Lender notifies Borrower in writing it dispenses with any one or more of the following requirements, Borrower will not: a) Character of Business. Engage in any business substantially apart from the services currently being provided by Borrower; b) Mergers, Consolidations, Sales. Consolidate with or merge into any other Person or permit any other Person other than a Subsidiary to consolidate with, or merge into, the Borrower, or to sell, transfer or otherwise dispose of all, or substantially all, of its assets to any other Person; c) Business Practices. Materially alter or change the principal business in which Borrower is engaged or the manner in which Borrower conducts its business affairs; and d) Untrue Statements. Furnish Lender any certificate or other document that will contain any untrue statement of material fact or that will omit to state a material fact necessary to make it not misleading in the light of circumstances under which it was furnished. SECTION 9. REPRESENTATIONS AND WARRANTIES. Borrower represents and warrants to Lender that: a) Absence of Defaults. All agreements to which Borrower and Lender are parties are valid and binding agreements enforceable against Borrower in accordance with their terms, and no event has occurred and is continuing which constitutes an Event of Default by Borrower or a default by Borrower under any such agreements; b) Ownership. BUI owns all of the Flood Book; c) Proceeds. Proceeds under this Loan will be used exclusively for the purposes and in the amounts set forth herein; d) Correct Financials. Any financial statements heretofore delivered to Lender are true and correct in all respects, have been prepared in accordance with generally accepted accounting principles and fairly represent the financial conditions of the Borrower as of the respective dates thereof. No material adverse change has occurred in the financial condition of the Borrower reflected in such financial statements since the respective dates thereof and no additional borrowings have been made by Borrower since the date thereof other than the borrowing contemplated hereby; e) No Breach or Violation. The consummation of the transactions contemplated hereby or the performance by Borrower of any Obligation will not result in any breach of or constitute a default under any mortgage, deed of trust, lien, bank loan, or credit agreement, corporate charter, by-law, law, regulation, ordinance, order, judgment, decree or other instrument to which Borrower is a party, or by which it is bound or affected; f) Corporate Existence-Good Standing. 1) Borrower is a corporation duly organized, validly existing, and in good standing under the laws of the State of Florida; 5 of 10 2) Borrower has all lawful corporate power to own its properties and to engage in the business it now conducts, and Borrower is duly qualified and in good standing as a foreign corporation in the jurisdictions wherein the nature of the business transacted by it or property owned by it make such qualification necessary; 3) Borrower has not changed its name, been the surviving corporation in a merger, acquired any business, or changed its principal executive office since 1994; and g) Representations and Warranties Survive. All of the representations and warranties set forth in Section 9. hereof encaptioned, "Representations and Warranties" shall survive the execution and delivery of this Agreement and the other Loan Documents until all Obligations are satisfied in full and all outstanding amounts due under the Loan are paid in full. h) Authority/Validity. Borrower had the requisite corporate power and authority to execute and deliver this Agreement and the other Loan Documents. The execution, delivery and performance of this Agreement and the other Loan Documents have been duly authorized by all necessary corporate action on the part of the Borrower. i) Litigation. There is no litigation proceeding pending, or to the knowledge of Borrower, threatened against Borrower except for threats of litigation against BIG by AMS, which will be fully resolved by BIG by means of the payment by BIG, from the proceeds hereof, of the loan from AMS to BIG as described in Section 4(b)(i) hereof, and Borrower knows of no circumstances as of the date of this Agreement that could materially and adversely affect the Borrower and/or the Collateral. SECTION 10. FINANCING STATEMENTS. a) At Lender's discretion, Borrower will join with Lender in executing such financing statements (including amendments thereto and continuation statements thereof) in form satisfactory to Lender; pay or reimburse Lender for all costs and taxes of filing and recording the same in such public offices as Lender may designate; and take such other steps as Lender may direct, including the noticing of Lender's lien on the Collateral and on any certificates of title therefore all to perfect Lender's interest in the Collateral; and b) To the extent lawful, Borrower hereby appoints Lender with full power of substitution and revocation, as its Attorney-in-Fact (without requiring Lender to act as such) to execute any financing statement in the name of Borrower, and to perform all other acts that Lender deem appropriate to perfect and continue its security interest in, and to preserve, the Collateral. SECTION 11. EVENTS OF DEFAULT. The following occurrences shall constitute Events Of Default hereunder: a) Non-Payment. Borrower fails to pay when and as required to be paid herein, any principal or interest amount within 5 days after the same becomes due; b) Breach of Warranty. Any warranty, representation, or statement made or furnished to Lender by or on behalf of Borrower proves to have been false in any material respect on or as of the date when made or furnished or deemed made or furnished; c) Breach of Covenant. Any affirmative covenant or negative covenant is breached, violated or not complied with if such affirmative covenant or negative covenant continues to be breached, violated 6 of 10 or not complied with after Lender has given notice thereof to Borrower and a 15 day opportunity to cure; d) Dissolution/Bankruptcy. Dissolution, termination of existence, insolvency (failure to pay its debts as they mature or the failure to maintain the fair market value of its assets in an amount greater than its liabilities on a consolidated basis for purposes herein, whichever shall first occur), a business failure, appointment of a receiver, assignment for the benefit of creditors or the commencement of any proceedings under any bankruptcy or insolvency law by or against Borrower or any guarantor or the making by either Borrower or any guarantor of any offer or settlement, exchange or composition to their respective unsecured creditors generally; e) Attach Liens. The issuance or filing against Borrower of a tax lien or the issuance or filing of any attachment, injunction, execution or judgment which is not removed within thirty (30) days after issuance of filing; f) Waste. Lender shall, upon reasonable basis, at any time deem itself insecure or unsafe because of diminution, removal, or waste of Collateral; g) Third Party Debt. Borrower shall fail to pay any Indebtedness due any third persons and such failure shall continue beyond any applicable grace period, or Borrower shall suffer to exist any other event of default under any agreement binding the Borrower; h) Judgment. Borrower shall suffer final judgments for payment of any sums due to third parties and shall not discharge the same within a period of thirty (30) days (unless, pending further proceedings, execution has not been commenced, or if commenced has been effectively stayed) or a judgment creditor of Borrower shall obtain possession of any of the Collateral by any means, including, without limitation, levy, distraint, replevin, or self help; and i) Impairment of Security. Any condition or situation, which, in the sole determination of the Lender, upon reasonable basis, constitutes a danger of impairment of the security of the Loan, and such condition or situation is not remedied within ten (10) business day's after receipt of written notice to the Borrower to remedy such condition or situation. j) Default under Other Documents. A default shall occur under the Merger Agreement, other Loan Documents or other Material Agreements (as that term is defined herein) between Borrower and Lender, and which are not cured within the applicable grace or curative period set forth therein. For purposes of this Agreement, the term "Material Agreement" shall mean any agreement the default of which could result in a claim for damages of at least $100,000.00. SECTION 12. DEFAULT REMEDIES. a) Upon any Event Of Default: 1) Lender shall retain the right to terminate making any further advances of the Loan at any time thereafter, without notice, and until all Obligations are satisfied in full, such termination shall not affect the duties, covenants and liabilities of Borrower hereunder and all the terms, conditions and provisions hereof relating thereto shall continue to be fully operative until all transactions entered into and Obligations have been fully satisfied; 2) All or any portion of Obligations due or to become due whether under this Agreement or otherwise, shall, at the option of Lender, without notice, demand, presentment or dishonor, all 7 of 10 of which Borrower hereby waives, become at once due and payable, and Lender shall thereupon have all the rights and remedies of a secured party under the Uniform Commercial Code as adopted by the State of Florida; 3) Lender may also, with or without proceeding with sale or foreclosure or demanding payment of a debt owning by Borrower to Lender, without notice, terminate further performance under this Agreement and may declare all outstanding amounts under the Loan Documents due and payable and proceed against the Collateral whether or not in the possession of Lender; and 4) To the extent either Borrower makes a payment or payments to Lender which payment or payments or any part thereof are subsequently invalidated, declared to be fraudulent or preferential, set aside or required to be repaid to a trustee, receiver or any other party under any bankruptcy act, state or federal law, common law or equitable cause, then, to the extent of such payment or repayment, the Obligation(s) or part thereof intended to be satisfied shall be revived and continued in full force and effect as if such payment had not been made. b) Any failure or delay of Lender to exercise or enforce any rights, liens, powers or remedies hereunder or under any of the aforesaid agreements or other documents or security or Collateral shall not operate as a waiver of such liens, rights, powers and remedies, but all such liens, rights, powers and remedies shall continue in full force and effect until all loans and advances and all Obligations owing or to become owing from Borrower to Lender shall have been fully satisfied and all liens, rights, powers and remedies herein provided are cumulative and none is exclusive. c) Lender may exercise any right or remedy it has under the Note which rights and remedies thereunder are not limited hereby. SECTION 13. MISCELLANEOUS a) Further Assurances. From time to time, Borrower will execute and deliver to Lender such additional documents and will provide such additional information as Lender may reasonably require to carry out the terms of this Agreement and be informed of Borrower's status and affairs. b) Payment. The Borrower agrees that as long as the Loan Documents are in full force and effect, it will make all payments on the Note, when due, by check duly mailed or delivered to Lender at the address indicated in the Notice section of this Agreement, or at such other place as Lender may designate to the Borrower in writing. c) Successors and Assigns. This Agreement shall bind and inure to the benefit of the respective successors and assigns of the parties hereto. d) Waiver by Lender. Lender shall have the right at all times to enforce the provisions of this Agreement and any other Loan Document executed pursuant hereto in accordance with the terms hereof and thereof, notwithstanding any conduct or custom on the part of Lender in refraining from so doing at any time. The failure of Lender at any time to enforce its rights under such provisions, in accordance with the same shall not be construed as having created a custom in any way or manner contrary to specific provisions of this Agreement or as having in any way or manner modified or waived the same. All rights and remedies of Lender are cumulative and concurrent and the exercise of one right or remedy shall not be deemed a waiver or release of any other right or remedy. 8 of 10 e) Costs/Expenses. Borrower will pay all reasonable costs and expenses related to the transactions contemplated hereby including but not limited to, out-of-pocket expenses for payment of recording and filing fees, legal fees and expenses of counsel appointed by the Lender, together with any interest and penalties for the late payment thereof, all of which amounts shall be payable at the time of the execution of this Agreement or upon demand in the event they are hereafter incurred. f) Attorney's Fees. If either of the Parties hereto should bring a Court action alleging breach of this Agreement or seeking to enforce, rescind, renounce, declare void or terminate this Agreement or any provisions thereof, the prevailing party shall be entitled to recover all of its legal expenses, including reasonable attorney's fees and costs (including legal expenses for any bankruptcy proceedings or appeals taken), and to have the same awarded as part of the judgment in the proceeding in which such legal expenses and attorney's fees were incurred. g) Captions. The Agreement contains captions as to contents of the particular paragraphs. The captions set forth herein are inserted only for convenience and are in no way to be construed as part of this Agreement or as a limitation of the scope of the particular paragraph in which they are referred. h) Construction of Agreement. Words of a gender used in this Agreement shall be held to include any other gender, the words in a singular number held to include the plural, when the sentence so requires. i) Counterparts. This Agreement may be executed in several counterparts, each of which so executed shall be deemed to be an original, and said counterparts shall together constitute and be one and the same instrument. j) Entire Agreement. This Agreement contains all of the oral and/or previously written agreements, representations, and arrangements between the Parties hereto with respect to the subject matter of this Agreement, and all right which the respective Parties may have had under any written agreements and/or oral agreements with respect to the subject matter of this Agreement are hereby canceled and terminated, and all Parties agree that there are no representations or warranties other than those set forth herein. k) Invalidation. Should any part of this Agreement for any reason be declared invalid, such decision shall not effect the validity of any remaining portion, which remaining portion shall remain in full force and effect as if this Agreement had been executed with the invalid portion thereof eliminated. It is, therefore, declared the intention of the Parties hereto that each of them will have executed the remaining portion of this Agreement without including therein any such part, parts or portion which may, for any reason, be hereafter declared void. l) Modification. No change or modification of this Agreement shall be valid unless the same shall be in writing and signed by each of the Parties hereto. m) Notices. Any and all notices, designations, consents, offers, acceptances, or any other communication provided for herein shall be given in writing by hand delivery, by overnight carrier, by registered or certified mail or by facsimile transmission and shall be addressed as follows: As to Borrower: Bankers Insurance Group, Inc. 360 Central Avenue, 17th Floor St. Petersburg, Florida 33701 9 of 10 Att: David B. Snyder Telephone: (727) 823-4000 Telefax: (727) 823-6518 and Bankers Underwriters, Inc. 360 Central Avenue, 17th Floor St. Petersburg, Florida 33701 Att: David B. Snyder Telephone: (727) 823-4000 Telefax: (727) 823-6518 As to Lender: Insurance Management Solutions Group, Inc. 360 Central Avenue, 16th Floor St. Petersburg, Florida 33701 Att: David Howard, President Tel#: (727) 803-2040 Fax: (727) 803-4093 Notices sent by hand delivery shall be deemed effective on the date of hand delivery. Notices being sent by overnight carrier shall be deemed effective on the next business day after being placed into the hands of the overnight carrier. Notices sent by registered or certified mail shall be deemed effective on the third business day after being deposited into the post office. Notices sent by facsimile transmission shall be deemed to be effective on day when sent if sent prior to 5:00 p.m. (the time being determined by the time zone of the recipient) otherwise they shall be deemed effective on the next business day. n) Representation Acknowledged. The Parties acknowledge that each Party and its counsel have reviewed and revised this Agreement and that the normal rules of construction to the effect that any ambiguities are to be resolved against the drafting party shall not be employed in the interpretation of this Agreement or any amendments or exhibits hereto. o) Applicable Law/Venue. This Agreement shall be construed in accordance with and governed by the laws of the State of Florida, without regard to choice of law provisions. Further, the venue for any action brought to enforce any of the provisions hereof shall be in a state court of competent jurisdiction in Pinellas County, Florida and any action commenced in any other forum may be removed to a state court of competent jurisdiction in Pinellas County, Florida. IN WITNESS WHEREOF, the Parties hereto have set their hands and seals, the day and year first above written. "BIG" BANKERS INSURANCE GROUP, INC., a Florida corporation By: /s/ David B. Snyder --------------------------- Its Vice President, Assistant Secretary (CORPORATE SEAL) 10 of 10 "BUI" BANKERS UNDERWRITERS, INC. a Florida Corporation By: /s/ David B. Snyder --------------------------------------- Its Vice President Assistant Secretary (CORPORATE SEAL) "Lender" INSURANCE MANAGEMENT SOLUTIONS GROUP, INC., a Florida corporation By: /s/ D. M. Howard --------------------------------------- Its President/CEO (CORPORATE SEAL) 10 of 10 EX-10.5 7 g77638exv10w5.txt REVOLVING LINE OF CREDIT PROMISSORY NOTE Exhibit 10.5 REVOLVING LINE OF CREDIT MASTER PROMISSORY NOTE $7,000,000.00 August 15, 2002 FOR VALUE RECEIVED, the undersigned, BANKERS INSURANCE GROUP, INC. a Florida corporation (herein, "BIG") and BANKERS UNDERWRITERS, INC., a Florida corporation (herein, "BUI") (BIG and BUI herein, collectively, "Debtor") jointly and severally promise to pay to the order of INSURANCE MANAGEMENT SOLUTIONS GROUP, INC., a Florida corporation, together with any other holder hereof (herein, "Holder"), the principal sum of Seven Million and No/100 dollars ($7,000,000.00), together with interest thereon from the date hereon at a rate equal to ten and 75/100 percent (10.75%) per anum, both principal and interest being payable at Holder's place of business, 360 Central Avenue, St. Petersburg, Florida 33701, or at such other places as Holder may designate from time to time, in the following manner: Commencing on the first day of September 2002, all accrued and unpaid interest shall be due and payable, which shall also be paid on the first day of each calendar month thereafter (herein, "Payment Date"). All unpaid principal and interest shall be due and payable in full on the earlier of: (i) July 31st, 2003; or (ii) the date exactly ninety (90) days (or the next business day thereafter) following receipt by Debtor of written notice from Holder demanding repayment in full of this Note (a "Demand"), which Demand can only be made by Holder at any time following the occurrence of a Demand Event (as that term is defined below). For purposes of this Note: (a) the term "Demand Event" shall mean: (i) the expiration of an Offer (as that term is defined in the Merger Agreement) without any Shares (as that term is defined in the Merger Agreement) owned by Public Shareholders (as that term is defined in the Merger Agreement) being purchased pursuant to the Offer; (ii) if the Holder shall not have then purchased Shares owned by the Public Shareholders pursuant to an Offer, the later of: (A) December 31, 2002 or (B) such later date on which the Offer is terminated by Holder if the Offer is extended beyond December 31, 2002 by Holder; (iii) the date of any breach of the Merger Agreement by Debtor or its Affiliates; (iv) the date of the termination or expiration of the Merger Agreement. (b) the term "Merger Agreement" shall mean that certain Agreement and Plan of Merger by and Among BIG, Bankers Insurance Company ("BIC"), Bankers Security Insurance Company ("BSIC"), Bankers Management Corporation and the Holder of even date herewith. Events of Default. The above notwithstanding, all principal and accrued but unpaid interest shall become immediately due and payable by Debtor in any of the following events: (i) An uncured default by Debtor under this Note or the Credit and Security Agreement of even date herewith (the "Credit Agreement"); (ii) An uncured default by Debtor under that certain Collateral Assignment of Flood Book of even date herewith (the "Collateral Assignment"); or (iii) An uncured default by BIG, BIC or BSIC under the Merger Agreement. Credit and Security Agreement. Unless the context shall otherwise require, capitalized terms not defined herein shall have the meanings assigned thereto in the Credit Agreement. Master Note. This Note is a master note, and it is contemplated that any amounts evidenced hereby will be advanced from time to time to the Debtor by Holder in installments, as requested from time to time by the Debtor to the Holder. Advances. It is further contemplated that any amounts advanced under this Note may be prepaid from time to time by the Debtor. Debtor may receive advances hereunder at any time, up to a maximum aggregate amount outstanding at any one time equal to the principal amount of this Note, provided that: (i) Debtor is not in default under any provision of this Note, the Credit Agreement, or any other documents executed in connection with this Note or the Credit Agreement, or any other note or other loan documents now or hereafter executed in connection with any other obligation of Debtor to Holder; (ii) Debtor is not in default with respect to its obligations under that certain Collateral Assignment; and (iii) neither Debtor, BIC, nor BSIC is in default with respect to their obligations under the Merger Agreement. By reason of such prepayments hereon there may be times when no indebtedness is owing hereunder, and notwithstanding any such occurrence, this Note shall remain valid and shall be in full force and effect as to each subsequent principal advance made hereunder. Each principal advance and each payment made pursuant to this Note shall be reflected by notations made by Holder on the grid attached hereto as Schedule "A", and Holder is hereby authorized to record on such grid all such principal advances and payments. The aggregate unpaid amounts reflected by the notations made by Holder on the attached grid shall be deemed rebuttably presumptive evidence of the principal amount remaining outstanding and unpaid on this Note. No failure of Holder so to record any advance or payment shall limit or otherwise affect the obligation of the Debtor hereunder with respect to any advance, and no payment of principal by the Debtor shall be affected by the failure of Holder so to record the same. Advance Obligations. All advances to be made hereunder shall be made at the option of Debtor, by providing written notice to Holder of the amount of a proposed advance. This Note shall be valid and enforceable as to the aggregate amount advanced at any time hereunder, whether or not the full face amount hereof is advanced. Application of Payments. Each payment on the indebtedness evidenced hereby will first reduce charges related to this Note owed by the Debtor that are neither principal nor interest. The remainder of each such payment will be applied first to the interest then accrued on said principal sum remaining unpaid, and then to the reduction of such unpaid principal. Principal and interest shall be payable in lawful money of the United States of America. - -------------------------------------------------------------------------------- 2 of 7 Prepayment. The Debtor hereof shall not incur any penalty upon the prepayment of all or any part of the indebtedness evidenced hereby. Interest Calculation. Interest shall be calculated on all amounts advanced based on the actual number of days said amounts are outstanding. Interest shall be computed on the basis of a year of actual number of days per year [i.e. three-hundred-sixty-five (365) days] and charged for the actual number of days in the payment period. Maximum Rate. Debtor shall have no obligation to pay interest or payments in the nature of interest in excess of the maximum rate of interest allowed to be contracted for by law, as changed from time to time, applicable to this Note (herein, "Maximum Rate"). Any interest in excess of the Maximum Rate paid by Debtor (herein, "Excess Sum") shall be credited as a payment of principal, or, if Debtor so requests in writing, returned to Debtor, or, if the indebtedness and other obligations evidenced by this Note have been paid in full, returned to Debtor together with interest at the same rate as was paid by Debtor during such period. Any Excess Sum credited to principal shall be credited as of the date paid to Holder. Holder may, without such action constituting a breach of any obligations to Debtor, seek judicial determination of the applicable rate of interest, and its obligation to pay or credit any proposed Excess Sum to Debtor. Collateral. The obligations under this Note and the Collateral Assignment are secured by and subject to the terms and conditions of the Credit Agreement and various other loan documents of even date herewith executed by and between Debtor and Holder, respectively. Past Due. Time is of the essence hereunder. If any payment hereby required is overdue for more than five (5) days, the Holder of this Note may, at its option, and without notice, declare the entire balance of principal then remaining unpaid to be immediately due and payable, and any failure to exercise said option shall not constitute a waiver of the right to exercise the same at any other time. Further, upon an Event of Default, Holder of this Note may, at its option, and without notice, adjust the interest due on the aggregate principal amount remaining due and unpaid, together with accrued interest, upward, to the rate of eighteen (18.0%) per centum per annum, or the Maximum Rate of interest permitted by law, whichever rate shall be the lesser, which rate of interest, as adjusted upward, shall be paid on all sums due hereunder until the said sums have been paid in full, regardless of any payments made by the maker hereof, and accepted by the Holder, after said option has been exercised. Upon default in making any payment hereby required, Debtor promises to pay all costs and expenses, including reasonable attorney's fees (including the cost of any appeals), incurred in collecting this Note by legal proceedings or through an attorney. Remedies. The remedies of Holder herein and in the Credit and Security Agreement shall be cumulative and concurrent, and may be pursued singularly, successively, or together, at the sole discretion of Holder, and may be exercised as often as occasion therefor shall arise. No action or omission of Holder, including specifically any failure to exercise or forbearance in the exercise of any remedy, shall be deemed to be a waiver or release of the same, such waiver or release to be effected only through a written document executed by Holder and then only to the extent specifically recited therein. A waiver or release with reference to any one event shall not be construed as continuing or as constituting a course of dealing, nor shall it be construed as a bar to, or as a waiver or release of, any subsequent remedy as to a subsequent event. 3 of 7 Set-Off. In addition to all liens upon, and rights of set-off against, any monies, securities, or other property of any of the Debtor given to Holder by law, Holder shall have a lien upon and a right of set-off against all monies, securities and other property of any of the Debtor now or hereafter in the possession of, or on deposit with, Holder, whether held in a general or special account or deposit, for safekeeping, in trust or otherwise, and every such lien and right of set-off as may be exercised without demand upon or notice to any Debtor, and the Holder shall have no liability with respect to any of Debtor's checks or other items which may be returned or other funds transfers which may not be made due to insufficient funds thereafter. Exercise/Modification. Neither any failure nor any delay on the part of Holder in exercising any right, power, or privilege under this Note shall operate as a waiver thereof, nor shall a single or partial exercise thereof preclude any other or further exercise or the exercise of any other right, power, or privilege. No modification, amendment, or waiver of any provisions of this Note shall be effective unless in writing and signed by a duly authorized officer of Holder, and then the same shall be effective only in the specific instance and for the purpose for which given. No notice to, or demand on, any Debtor in any case shall entitle any Debtor to any other or further notice or demand in the same, similar, or other circumstances. Severability. Any provision of this Note which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof or affecting the validity or enforceability of such provision in any other jurisdiction. Waiver. Debtor and any other person liable for the payment hereof respectively, hereby expressly waive any valuation and appraisal, presentment, demand for payment, notice of dishonor, protest, notice of nonpayment or protest, all other forms of notice whatsoever, except as set forth herein, and diligence in collection. No Waiver. Acceptance of payments marked "payment in full" or "in satisfaction" or words to similar effect shall not affect the duty of Debtor to pay all obligations due hereunder, and shall not affect the right of Holder to pursue all remedies available to it hereunder or under any other agreement between the Debtor hereof and the Holder, including but not limited to that certain Credit and Security Agreement of even date herewith. Jury Trial. DEBTOR AND ANY OTHER PERSON LIABLE FOR PAYMENT HEREOF, BY EXECUTING THIS NOTE OR ANY OTHER DOCUMENT CREATING SUCH LIABILITY, WAIVE THEIR RIGHTS TO A TRIAL BY JURY IN ANY ACTION, WHETHER ARISING IN CONTRACT OR TORT, BY STATUTE OR OTHERWISE, IN ANY WAY RELATED TO THIS NOTE. THIS PROVISION IS A MATERIAL INDUCEMENT FOR HOLDER'S EXTENDING CREDIT TO DEBTOR AND NO WAIVER OR LIMITATION OF HOLDER'S RIGHTS UNDER THIS PARAGRAPH SHALL BE EFFECTIVE UNLESS IN WRITING AND MANUALLY SIGNED ON HOLDER'S BEHALF. Jury Trial Consideration. Debtor acknowledge that the above paragraph has been expressly bargained for by Holder as part of the loan evidenced hereby and that, but for Debtor's agreement and the agreement of any other person liable for payment hereof thereto, Holder would not have extended the loan for the term and with the interest rate provided herein. 4 of 7 Binding. The provisions of this Notes shall be binding upon the heirs, successors, and assigns of Debtor, except that Debtor may not assign or transfer its obligation hereunder without the written consent of Holder, and shall inure to the benefit of Holder, its successors, and assigns. Governing Law. This Note is to be governed by and construed under the laws of, the State of Florida, without regard to choice of law provisions as amended, except as modified by the laws and regulations of the United States of America. Venue. Debtor hereby consents and submits to the jurisdiction of the courts of the State of Florida, and, notwithstanding his, her, their, or its place of residence or organization or the place of execution of this Note, any litigation relating hereto, whether arising in contract or tort, by statute or otherwise, shall be brought in (and, if brought elsewhere, may be transferred to) a State court of competent jurisdiction in Pinellas County, Florida. Paragraph Headings; Gender and Number. The headings inserted at the beginning of each paragraph are for convenience of reference only and shall not limit or otherwise affect or be used in the construction of any of the terms or provisions hereof. The plural shall include the singular and the singular, the plural, wherever the context so admits. The masculine shall include the feminine and the neuter; the feminine, the masculine and the neuter; and the neuter, the masculine and the feminine. Documentary Stamp. This instrument was made, executed and delivered outside the State of Florida, and no Florida Documentary Stamp Tax is due hereon in accordance with F.A.C. 12B-4.053(33). Notices. Any and all notices, designations, consents, offers, acceptances, or any other communication provided for herein shall be given in writing by hand delivery, by overnight carrier, by registered or certified mail or by facsimile transmission and shall be addressed as follows: As to Borrower: Bankers Insurance Group, Inc. 360 Central Avenue, 17th Floor St. Petersburg, Florida 33701 Att: David B. Snyder Telephone: (727) 823-4000 Telefax: (727) 823-6518 and Bankers Underwriters, Inc. 360 Central Avenue, 17th Floor St. Petersburg, Florida 33701 Att: David B. Snyder Telephone: (727) 823-4000 Telefax: (727) 823-6518 As to Lender: Insurance Management Solutions Group, Inc. 360 Central Avenue, 16th Floor St. Petersburg, Florida 33701 Att: David Howard, President Tel#: (727) 803-2040 Fax: (727) 803-4093 5 of 7 IN WITNESS WHEREOF, Debtor has caused this Note to be signed, sealed and delivered in its name on the day and year first above written. DEBTOR: BANKERS INSURANCE GROUP, INC. a Florida corporation By: /s/ David B. Snyder ----------------------------- Its Vice President & Assistant Secretary (CORPORATE SEAL) and BANKERS UNDERWRITERS, INC. a Florida corporation By: /s/ David B. Snyder ----------------------------- Its Vice President & Assistant Secretary (CORPORATE SEAL) 6 of 7 SCHEDULE "A" MASTER PROMISSORY NOTE Debtor: Bankers Insurance Group, Inc. and Bankers Underwriters, Inc. Holder: Insurance Management Solutions Group, Inc. Project Name: Revolving Line of Credit Original Amount: $7,000,000.00 As of: 8/15/02

AMOUNT NET MONTH AMOUNT OF PRINCIPAL OUTSTANDING AVAILABLE ENDING OF ADVANCES REPAYMENT BALANCE AMOUNT - -------------------------------------------------------------------------------------------------------------------------- Original Amount $7,000,000.00 $7,000,000.00 $0.00 $0.00 $7,000,000.00 $0.00 $0.00 $0.00 $7,000,000.00 $0.00 $0.00 $0.00 $7,000,000.00 $0.00 $0.00 $0.00 $7,000,000.00 $0.00 $0.00 $0.00 $7,000,000.00 $0.00 $0.00 $0.00 $7,000,000.00 $0.00 $0.00 $0.00 $7,000,000.00 $0.00 $0.00 $0.00 $7,000,000.00 $0.00 $0.00 $0.00 $7,000,000.00 $0.00 $0.00 $0.00 $7,000,000.00 $0.00 $0.00 $0.00 $7,000,000.00 $0.00 $0.00 $0.00 $7,000,000.00 $0.00 $0.00 $0.00 $7,000,000.00 $0.00

7 of 7 EX-10.6 8 g77638exv10w6.txt COLLATERAL ASSIGNMENT OF FLOOD BOOK Exhibit 10.6 COLLATERAL ASSIGNMENT OF FLOOD BOOK THIS COLLATERAL ASSIGNMENT OF FLOOD BOOK (herein, "Assignment") is made effective this 15 day of August, 2002 by BANKERS UNDERWRITERS, INC., A FLORIDA CORPORATION (herein, "Pledgor"), in favor of INSURANCE MANAGEMENT SOLUTIONS GROUP, INC., A FLORIDA CORPORATION (herein, "Lender"). RECITALS: WHEREAS, Lender has its principal place of business located in St. Petersburg, Florida, and has established a revolving line of credit (collectively, with the Note and Loan Documents, as defined herein, the "Credit Line") in favor of Bankers Insurance Group, Inc., a Florida corporation (herein, "BIG") and Pledgor (BIG and Pledgor herein, collectively, "Borrower"), in the amount of seven million and no/100 dollar ($7,000,000.00), as evidenced by Borrower's Revolving Line of Credit Master Promissory Note (herein, "Note") of even date herewith and in like principal amount; and WHEREAS, Pledgor, Bankers Insurance Company, a Florida corporation (herein, "BIC"), and First Community Insurance Company, a Florida corporation (herein, "FCIC") are each wholly-owned subsidiaries of BIG; and WHEREAS, in connection with the establishment of the Credit Line, Borrower has executed and delivered various applicable documents, all dated of even date herewith (collectively together with this Assignment, the "Loan Documents") including, but not limited to, the Note, Credit and Security Agreement, UCC-1 Financing Statement, and Further Assurances Agreement; and WHEREAS, Pledgor, as a Florida general insurance agent serving both BIC and FCIC, is the owner of a significant flood book of business (inclusive of all agency agreements pertaining thereto herein, "Flood Book") consisting of in excess of 350,000 flood insurance policies on properties located in various states of the United States, which Flood Book is more particularly described on Exhibit "A" attached hereto; and WHEREAS, as a condition precedent to establishing the Credit Line, Lender has required the execution of this Assignment; NOW, THEREFORE, in consideration of the aforesaid Credit Line, as well as for other good and valuable consideration, Pledgor hereby assigns the Flood Book to Lender as collateral security for the repayment of all sums advanced on the Credit Line and for the performance by Borrower of all covenants and agreements under the Loan Documents, in accordance with the following terms and conditions: SECTION 1. RECITALS. The statements contained in the recitals of fact set forth above (herein, "Recitals") are true and correct, and the Recitals by this reference are made a part of this Assignment. SECTION 2. EXHIBITS. The exhibits attached to this Assignment are by this reference made a part of this Assignment. 1 of 7 SECTION 3. TERM OF ASSIGNMENT. a) This Assignment shall be effective upon the date set forth hereinabove. b) This Assignment shall continue in full force and effect until Borrower shall have satisfied in full all of its obligations to Lender under the Note and other Loan Documents. SECTION 4. POWER OF ATTORNEY. a) Appointment. 1) Until such time as the Credit Line has been paid in full or upon consent by Lender otherwise, and except as provided below, Pledgor irrevocably nominates, constitutes and appoints Lender its true and lawful attorney in fact, with full power of substitution and revocation for it, in its name, place and stead and either in the name of Lender or in the name of Pledgor to assign any agency agreements between Pledgor and agents responsible for the production of federal flood insurance policies as well as any other instruments, agreements, or certificates necessary or appropriate to give full force an effect to such assignment which assignment may be to Lender, to BIC, to FCIC, or to such other party as Lender may select, but Lender shall not be under any duty to exercise any such authority or power or in any way be responsible for the collection of any sums owing under the Flood Book (herein, "Power of Attorney"). 2) All rights, powers, and authority of said attorney-in-fact to exercise any and all rights and powers herein granted shall commence and be in full force and effect as of the date of this Assignment and such rights, powers, and authority shall remain in full force and effect thereafter until the termination of this Assignment. b) Limitation. Notwithstanding the foregoing or anything contained in this Assignment to the contrary, Lender shall not exercise its rights under this Power of Attorney or under this Agreement until an Event of Default (as defined below) occurs hereunder. c) Power. The Power of Attorney set forth herein is a power coupled with an interest. SECTION 5. AFFIRMATIVE COVENANTS Pledgor hereby covenants with Lender that: (i) for so long as any amount remains outstanding under the Credit Line; and (ii) unless Lender notifies Pledgor in writing it dispenses with any one (1) or more of the requirements contained in the Loan Documents, Pledgor shall keep the Flood Book free from any and all liens, encumbrances, and security interests, and shall pay and discharge when due all taxes, levies, and other charges upon them and defend them against all claims of any person. SECTION 6. REPRESENTATIONS AND WARRANTIES. a) Pledgor hereby represents and warrants to Lender that: 1) it is the lawful owner and holder of the entire interest in the Flood Book described above; 2) it has good right to sell, transfer and assign the same as aforesaid; 2 of 7 3) there are no actions, suits, or proceedings pending or, to the best of Pledgor's knowledge and belief, threatened against or affecting it whether civil, criminal, administrative, or investigative, and it is not in default with respect to any judgment, decision, order, writ, injunction, decree, or demand of any court or governmental authority; 4) the consummation of the transactions hereby contemplated in performance of this Assignment or of any of the Loan Documents will not result in any breach of, or constitute a default under any mortgage, deed of trust, lien, bank loan or credit agreement, corporate charter or by-law, or other instrument to which Pledgor is a party, or by which it is bound or affected; 5) it is a corporation duly organized, validly existing and in good standing under the laws of the State of Florida; 6) it has the lawful power to own its properties and to engage in the business it conducts; 7) it is duly qualified and in good standing as a foreign corporation in the jurisdictions wherein the nature of the business transacted by it or property owned by it make such qualification necessary; 8) the execution of this Assignment and the consummation of the transactions contemplated herein, and the performance of this Assignment and the Loan Documents, will not result in a breach or violation of any law, regulation, ordinance, order, judgment or decree applicable to Pledgor or any affiliate of Pledgor; 9) as of the date hereof, and subject to the ordinary course of Pledgor's business, Pledgor has no knowledge of circumstances or events that will cause or is likely to cause any material adverse decline in the number of flood insurance policies which constitute the Flood Book, or any material adverse decline in the value of the Flood Book; 10) no affiliate of BIG owns or conducts any flood book of business, except for a nominal portion of flood book business written by Bankers Security Insurance Company and First Community Insurance Company; and 11) by means of this Assignment, Pledgor had granted Lender a first priority security interest in the Pledgor's entire interest in the Flood Book. b) All of the representations and warranties set forth in this Section 6 shall survive until all sums due under the Credit Line are satisfied in full. SECTION 7. EVENTS OF DEFAULT a) The term "Event of Default" shall mean: 1) Any breach by Pledgor of any of the terms of this Assignment; or 2) The breach or the occurrence of any event of default by Borrower, or any affiliate of Borrower, under any of the Loan Documents. SECTION 8. MISCELLANEOUS a) Further Assurances. From time to time, Pledgor will execute and deliver to Lender such additional documents and will provide such additional information as Lender may reasonably require to carry out the terms of this Assignment and be informed of Pledgor's status and affairs. 3 of 7 b) Payment. The Pledgor agrees that as long as the Note is in full force and effect, it will make all payments, when due, by check duly mailed or delivered to Lender at the address indicated in the Notice section of this Assignment, or at such other place as Lender may designate to the Pledgor in writing, notwithstanding any contrary provisions herein or in Note with respect to the place of payment. c) Survival of Representations and Warranties. All representations and warranties contained herein or made in writing by the Pledgor in connection herewith shall survive the execution and delivery of this Assignment and of the Note. d) Successors and Assigns. Pledgor may not assign its rights or obligations hereunder without the prior written consent of Lender, except that Pledgor may assign all or a portion of its rights and obligations hereunder to BIG, but only in conjunction with an assignment to BIG of a corresponding portion of Pledgor's interest in the Flood Book in such a manner that Lender shall maintain its first priority security interest in the entirety of the Flood Book whether then owned by BUI or BIG (provided, however, that BUI shall first serve notice of its intent to make such an assignment to BIG and shall not effect such assignment until Lender shall have completed such acts as Lender shall believe reasonably necessary to maintain its first priority security interest in the entirety of the Flood Book). All covenants and agreements in this Assignment contained by or on behalf of the parties hereto shall bind and inure to the benefit of the respective successors and assigns of the parties hereto whether so expressed or not. e) Waiver by Lender. Lender shall have the right at all times to enforce the provisions of this Assignment and any other Loan Documents executed pursuant hereto in strict accordance with the terms hereof and thereof, notwithstanding any conduct or custom on the part of Lender in refraining from so doing at any time or times. The failure of Lender at any time or times to enforce its rights under such provisions, strictly in accordance with the same, shall not be construed as having created a custom in any way or manner contrary to specific provisions of this Assignment or as having in any way or manner modified or waived the same. All rights and remedies of Lender are cumulative and concurrent and the exercise of one right or remedy shall not be deemed a waiver or release of any other right or remedy. f) Inspect Records. Lender (or any person or persons designated by it) shall, in its sole discretion, have the right to call at any place of business of Pledgor at any reasonable time, and without hindrance or delay, inspect, audit, check and make extracts from Pledgor's books, records, journals, orders, receipts and any correspondence and other data relating to Collateral, to Pledgor's business or any other transactions between the Parties hereto. g) Costs/Expenses. All reasonable costs and expenses of the Credit Line shall be paid by Pledgor, including but not limited to, out-of-pocket expenses for payment of recording and filing fees, legal fees and expenses of counsel appointed by the Lender, together with any interest and penalties for the late payment thereof, all of which amounts shall be payable at the time of the execution of this Assignment or upon demand in the event they are hereafter incurred. h) Attorney's Fees. If either of the parties hereto should bring a Court action alleging breach of this Assignment or seeking to enforce, rescind, renounce, declare void or terminate this Assignment or any provisions thereof, the prevailing party shall be entitled to recover all of its legal expenses, including reasonable attorney's fees and costs (including legal expenses for any appeals taken), 4 of 7 and to have the same awarded as part of the judgment in the proceeding in which such legal expenses and attorney's fees were incurred. i) INTENTIONALLY DELETED. j) Captions. The paragraph contains captions as to contents of the particular paragraphs herein are inserted only for convenience and are in no way to be construed as part of this Assignment or as a limitation of the scope of the particular paragraph in which they are referred. k) Construction of Assignment. Words of a gender used in this Assignment shall be held to include any other gender, the words in a singular number held to include the plural, when the sentence so requires. l) Counterparts. This Assignment may be executed in several counterparts, each of which so executed shall be deemed to be an original, and said counterparts shall together constitute and be one and the same instrument. m) Entire Assignment. This Assignment contains all of the oral and/or previously written agreements, representations, and arrangements between the parties hereto, and all right which the respective Parties may have had under any written agreements and/or oral agreements are hereby canceled and terminated, and all parties agree that there are no representations or warranties other than those set forth herein. n) Invalidation. Should any part of this Assignment for any reason be declared invalid, such decision shall not effect the validity of any remaining portion, which remaining portion shall remain in full force and effect as if this Assignment had been executed with the invalid portion thereof eliminated. It is, therefore, declared the intention of the parties hereto that each of them will have executed the remaining portion of this Assignment without including therein any such part, parts or portion which may, for any reason, be hereafter declared void. o) Modification. No change or modification of this Assignment shall be valid unless the same shall be in writing and signed by all of the Parties hereto. p) Notices. Any and all notices, designations, consents, offers, acceptances, or any other communication provided for herein shall be given in writing by hand delivery, by overnight carrier, by registered or certified mail or by facsimile transmission and shall be addressed as follows: As to Pledgor: Bankers Underwriters, Inc. 360 Central Avenue, 17th Floor St. Petersburg, Florida 33701 Att: David B. Snyder Telephone: (727) 823-4000 Telefax: (727) 823-6518 As to Lender: Insurance Management Solutions Group, Inc. 360 Central Avenue, 16th Floor St. Petersburg, Florida 33701 Att: David Howard, President 5 of 7 Tel#: (727) 803-2040 Fax: (727) 803-4093 Notices sent by hand delivery shall be deemed effective on the date of hand delivery. Notices being sent by overnight carrier shall be deemed effective on the next business day after being placed into the hands of the overnight carrier. Notices sent by registered or certified mail shall be deemed effective on the third business day after being deposited into the post office. Notices sent by facsimile transmission shall be deemed to be effective on day when sent if sent prior to 5:00 p.m. (the time being determined by the time zone of the recipient) otherwise they shall be deemed effective on the next business day. q) Representation Acknowledged. The parties acknowledge that each party and its counsel have reviewed and revised this Assignment and that the normal rules of construction to the effect that any ambiguities are to be resolved against the drafting party shall not be employed in the interpretation of this Assignment or any amendments or exhibits hereto. r) Applicable Law/Venue. This Assignment shall be construed in accordance with and governed by the laws of the State of Florida, without regard to choice of law provisions. Further, the venue for any action brought to enforce any of the provisions hereof shall be in a state court of competent jurisdiction in Pinellas County, Florida and any action commenced in any other forum may be removed to a state court of competent jurisdiction in Pinellas County, Florida. IN WITNESS WHEREOF, the Parties hereto have set their hands and seals, the day and year first above written. "Pledgor" BANKERS UNDERWRITERS, INC., a Florida corporation By: /s/ David B. Snyder ----------------------- Its Vice President Assistant Secretary (CORPORATE SEAL) "Lender" INSURANCE MANAGEMENT SOLUTIONS GROUP, INC. a Florida corporation By: /s/ D. M. Howard ----------------------- Its President/CEO (CORPORATE SEAL) 6 of 7 EXHIBIT "A" DESCRIPTION OF COLLATERAL All of Pledgor's right, title and interest in and to all of the following described Collateral, wherever located, and whether now owned or hereafter acquired, together with all replacements therefor and proceeds (including but without limitation, insurance policies) thereof: DESCRIPTION OF PLEDGOR COLLATERAL - ------------------------------------------------------------------------------ Bankers Underwriters, Inc., a All accounts and contract rights (as those Florida corporation terms are defined by the Uniform Commercial Code as adopted by the State of Florida) with insurance agents, including but not limited to general agency agreements with respect to the sale of federal flood insurance. 7 of 7 EX-10.7 9 g77638exv10w7.txt FURTHER ASSURANCE AND COMPILANCE AGREEMENT Exhibit 10.7 FURTHER ASSURANCE AND COMPLIANCE AGREEMENT For and in consideration of Ten Dollars ($10.00) and other good and valuable consideration, and the funding of that certain Revolving Line of Credit Master Promissory Note of even date in the amount of $7,000,000.00 (herein, "Loan") from Insurance Management Solutions Group, Inc. (herein, "Lender") to Bankers Insurance Group, Inc. and Bankers Underwriters, Inc. (herein collectively, "Borrower"), the Borrower agrees to cooperate, adjust, initial, re-execute and re-deliver any and all closing documents, including but not limited to any Notes, Credit Agreements, and Affidavits if deemed necessary or desirable in the sole discretion of the Lender in order to consummate or complete the Loan from the Lender to Borrower or to perfect the Lender's lien. It is the intention of the parties that all documentation for the Loan (herein, the "Loan Documents") shall be an accurate reflection of the Lender's requirements. The Borrower agrees and covenants to assure that the Loan and Loan Documents conform to the Lender's requirements. The Lender is relying upon this Agreement and the covenants contained herein in consideration for funding the Loan to Borrower. The Lender shall have the right to bring suit to enforce the obligations incurred in connection with this Agreement, and in the event any suit is brought to enforce this Agreement, the Lender shall be entitled to recover all costs and expenses incurred, including a reasonable attorney fee. DATED this 15 day of August, 2002. WITNESSES: "Borrower": Bankers Insurance Group, Inc., a Florida corporation /s/ Nancy C. Haire By: /s/ David B. Snyder - -------------------- ------------------------ /s/ Harold David Holland Its Vice President & Assistant Secretary - -------------------- As to Borrower (CORPORATE SEAL) Bankers Underwriters, Inc. a Florida Corporation /s/ Nancy C. Haire By: /s/ David B. Snyder - -------------------- ------------------------ /s/ Harold David Holland Its Vice President & Assistant Secretary - -------------------- As to Borrower (CORPORATE SEAL) Accepted and Agreed this 15 day of August, 2002: WITNESSES: "Lender": Insurance Management Solutions Group, Inc. a Florida corporation /s/ Nancy C. Haire By: /s/ D.M. Howard - ----------------------------------- ------------------------------------ Its PRES/CEO ------------------------------ /s/ Harold David Holland - ----------------------------------- As to Lender (CORPORATE SEAL) 2 EX-99.1 10 g77638exv99w1.txt CERTIFICATE OF CEO Exhibit 99.1 WRITTEN STATEMENT OF THE CHIEF EXECUTIVE OFFICER PURSUANT TO 18 U.S.C. SS. 1350 Solely for the purposes of complying with 18 U.S.C. ss. 1350, I, the undersigned Chief Executive Officer of Insurance Management Solutions Group, Inc. (the "Company"), hereby certify, based on my knowledge, that the Quarterly Report on Form 10-Q of the Company for the quarter ended June 30, 2002 (the "Report") fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934 and that information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ David M. Howard - ---------------------------------- David M. Howard August 19, 2002 EX-99.2 11 g77638exv99w2.txt CERTIFICATE OF CFO Exhibit 99.2 WRITTEN STATEMENT OF THE CHIEF FINANCIAL OFFICER PURSUANT TO 18 U.S.C. SS. 1350 Solely for the purposes of complying with 18 U.S.C. ss. 1350, I, the undersigned Chief Financial Officer of Insurance Management Solutions Group, Inc. (the "Company"), hereby certify, based on my knowledge, that the Quarterly Report on Form 10-Q of the Company for the quarter ended June 30, 2002 (the "Report") fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934 and that information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ Anthony R. Marando - -------------------------------- Anthony R. Marando August 19, 2002 -----END PRIVACY-ENHANCED MESSAGE-----

EX-2.1

                                                                    EXHIBIT 2.1


                          AGREEMENT AND PLAN OF MERGER

                                  BY AND AMONG

                          BANKERS INSURANCE GROUP, INC.

                            BANKERS INSURANCE COMPANY

                       BANKERS SECURITY INSURANCE COMPANY

                         BANKERS MANAGEMENT CORPORATION,

                                       AND

                   INSURANCE MANAGEMENT SOLUTIONS GROUP, INC.


                           DATED AS OF AUGUST 15, 2002

                               TABLE OF CONTENTS

ARTICLE I  THE OFFER ........................................................  2
     Section 1.01  The Offer ................................................  2
     Section 1.02  Company Action ...........................................  4

ARTICLE II  THE MERGER ......................................................  6
     Section 2.01  The Merger ...............................................  6
     Section 2.02  Articles Of Incorporation; By-Laws; Officers
                   And Directors ............................................  6
     Section 2.03  Conversion of Shares .....................................  7
     Section 2.04  Dissenting Shares ........................................  7
     Section 2.05  Exchange of Certificates .................................  8

ARTICLE III  REPRESENTATIONS AND WARRANTIES OF THE COMPANY .................. 10
     Section 3.01  Capitalization ........................................... 10
     Section 3.02  Authorization ............................................ 11
     Section 3.03  Governmental Authorization; Non-Contravention ............ 11
     Section 3.04  SEC Reports .............................................. 11
     Section 3.05  Absence of Certain Changes ............................... 12
     Section 3.06  No Undisclosed Material Liabilities ...................... 12
     Section 3.07  Litigation ............................................... 13
     Section 3.08  Compliance With Applicable Laws .......................... 13
     Section 3.09  Brokers and Finders ...................................... 14

ARTICLE IV  REPRESENTATIONS AND WARRANTIES OF
            BANKERS AND ACQUISITION SUBSIDIARY .............................. 14
     Section 4.01  Corporate Existence ...................................... 14
     Section 4.02  Corporate Authorization .................................. 14
     Section 4.03  Acquisition Subsidiary's Ownership and Operations ........ 14
     Section 4.04  Governmental Authorization; Non-Contravention ............ 15
     Section 4.05  Brokers and Finders ...................................... 15
     Section 4.06  Interests in the Company ................................. 15

ARTICLE V  CERTAIN COVENANTS AND AGREEMENTS ................................. 16
     Section 5.01  Conduct Of Business ...................................... 16
     Section 5.02  Announcement ............................................. 17
     Section 5.03  Notification of Certain Matters .......................... 17
     Section 5.04  Directors' and Officers' Indemnification ................. 18


                                       i

     Section 5.05  Access ................................................... 18
     Section 5.06  Resignation of Directors ................................. 19
     Section 5.07  No Tender of Bankers' Shares ............................. 19
     Section 5.08  Loan ..................................................... 19
     Section 5.09  Bankers Static Interest .................................. 19
     Section 5.10  Stock Options ............................................ 20

ARTICLE VI  CONDITIONS PRECEDENT ............................................ 20
     Section 6.01  Conditions to Each Party's Obligation to Effect
                   the Merger ............................................... 20

ARTICLE VII  TERMINATION, AMENDMENT AND WAIVER .............................. 21
     Section 7.01  Termination .............................................. 21
     Section 7.02  Effect of Termination .................................... 22
     Section 7.03  Amendment ................................................ 22

ARTICLE VIII  MISCELLANEOUS ................................................. 23
     Section 8.01  Nonsurvival of Representations and Warranties ............ 23
     Section 8.02  Expenses ................................................. 23
     Section 8.03  Applicable Law ........................................... 23
     Section 8.04  Notices .................................................. 23
     Section 8.05  Entire Agreement ......................................... 25
     Section 8.06  Assignment ............................................... 25
     Section 8.07  Headings ................................................. 25
     Section 8.08  Counterparts ............................................. 25
     Section 8.09  No Third Party Beneficiaries ............................. 25
     Section 8.10  Severability; Enforcement ................................ 25
     Section 8.11  Certain Definitions ...................................... 26
     Section 8.12  Interpretation ........................................... 26


Annex A

Annex B Loan Documents

                                       ii

                          AGREEMENT AND PLAN OF MERGER

      AGREEMENT AND PLAN OF MERGER dated as of August 15, 2002 (the "Agreement")
by and among Bankers Insurance Group, Inc., a Florida corporation ("BIG"),
Bankers Insurance Company, a Florida corporation ("BIC"), Bankers Security
Insurance Company, a Florida corporation ("BSIC," and together with BIG and BIC,
"Bankers"), Bankers Management Corporation, a Florida corporation, ("Acquisition
Subsidiary"), all of whose capital stock is owned by BIC and BSIC, and Insurance
Management Solutions Group, Inc., a Florida corporation (the "Company").

      WHEREAS, the Company has issued and outstanding 12,276,063 shares of
common stock, par value $0.01 per share (the "Company Common Stock" or
"Shares"); and

      WHEREAS, BIC and BSIC own 8,349,884 Shares, representing approximately 68%
of the outstanding Company Common Stock, hereinafter referred to as the "Bankers
Shares"; and

      WHEREAS, it is proposed that the Company make a cash tender offer (the
"Offer") in compliance with the applicable provisions of the Securities and
Exchange Act of 1934, as amended (the "Exchange Act"), to acquire all of the
issued and outstanding shares of the Company Common Stock for $3.08 per Share
(such amount, or any greater amount per share paid pursuant to the Offer, being
referred to as the "Per Share Amount") net to the seller in cash, upon the terms
and subject to the conditions of this Agreement. The Offer will be followed by a
merger of Acquisition Subsidiary with and into the Company, pursuant to which
each then-issued and outstanding Share not beneficially owned by Bankers or
Acquisition Subsidiary will be converted into the right to receive the Per Share
Amount, upon the terms and subject to the conditions provided in this Agreement;
and

      WHEREAS, the Board of Directors of the Company, upon recommendation of a
committee comprised of the four independent directors of the Company's Board of
Directors (the "Special Committee"), has determined that the consideration to be
paid for each Share in the Offer and the Merger is fair to the holders of the
Shares other than BIC and BSIC (the "Public Shareholders"), and has determined
that the Offer and Merger are advisable and in the best interests of the Public
Shareholders and has unanimously voted (i) to recommend that the Public
Shareholders accept the Offer and tender their Shares pursuant to the Offer and
(ii) to approve the merger of Acquisition Subsidiary with and into the Company,
with the Company being the surviving corporation, in accordance with the Florida
Business Corporation Act (the "FBCA") following consummation of the Offer (the
"Merger"); and

      WHEREAS, as consideration for Bankers' support of the Offer and the Merger
and Bankers agreement not to tender the Bankers Shares in response to the Offer
to purchase, upon execution of this Agreement the Company will loan seven
million dollars ($7,000,000) to BIG, pursuant to the terms of the documents
attached as Annex B hereto;

      NOW, THEREFORE, in consideration of the mutual representations, warranties
and agreements contained in this Agreement, the parties agree as follows:

                                    ARTICLE I

                                    THE OFFER

Section 1.01 The Offer.

       (a) Unless this Agreement has been terminated in accordance with Article
VII, the Company shall use commercially reasonable efforts (i) to complete and
file the Offer Documents, as defined below, and commence (within the meaning of
Rule 13e-4 promulgated under the Exchange Act) the Offer to acquire any and all
Shares at the Per Share Amount, and (ii) to cause the Offer Documents to be
disseminated to holders of shares. Subject to the Company's right to extend the
offer as herein provided, the Offer shall be scheduled to expire at 5:00 p.m.,
New York City time on the 21st business day following commencement of the Offer
(the "Initial Expiration Date").

       Unless this Agreement has been terminated by the Company in accordance
with Article VII, upon the filing of the Offer Documents as set forth above the
Company shall use commercially reasonable efforts to consummate the Offer in
accordance with its terms (except as otherwise permitted by the terms of the
Offer) and to accept for payment Shares tendered pursuant to the Offer as soon
as legally permitted to do so under applicable law and shall pay for tendered
Shares as soon as practical, subject to:

            (i) the condition that pursuant to the Offer, there shall have been
      validly tendered and not withdrawn before the Offer expires (after all
      extensions thereof) the number of shares of Company Common Stock which
      constitutes at least a majority of the outstanding shares of Company
      Common Stock other than the Bankers Shares (the "Minimum Condition"); and

            (ii) the other conditions set forth in Annex A to this Agreement.

      None of the foregoing conditions shall be waived by the Company without
the written consent of Bankers.


                                        2

      (b) The Offer shall be made by means of the Offer to Purchase (as defined
below) and shall be subject to the Minimum Condition and the other conditions
set forth in Annex A to this Agreement, and shall reflect, as appropriate, the
other terms set forth in this Agreement and shall include the information
specified in Section 607.1104 of the FBCA. The Company reserves the right to
increase the amount it offers to pay per Share in the Offer with the prior
written consent of Bankers and to extend the Offer to the extent required by law
in connection with such an increase. Without the prior written consent of the
Special Committee and Bankers, the Company will not:

            (i) decrease the Per Share Amount;

            (ii) change the number of Shares to be purchased in the Offer;

            (iii) change the form of the consideration payable in the Offer;

            (iv) amend or waive the Minimum Condition; or

            (v) make any other change in the terms or conditions of the Offer
      which is materially adverse to the holders of Shares (other than Bankers
      and its Affiliates).

      (c) If, on the Initial Expiration Date, all conditions to the Offer will
not have been satisfied or waived, the Company may, from time to time, extend
the expiration date; provided, however, that the Offer shall not be extended
beyond December 31, 2002 without the prior written consent of Bankers; provided,
however, if the Offer has not been consummated by December 31, 2002 because of
an order or injunction issued by a governmental entity or court of law, the
Offer may be extended by the Company until January 31, 2003 without the prior
written consent of Bankers.

       The Per Share Amount shall, subject to any applicable withholding of
taxes, be net to the seller in cash, upon the terms and subject to the
conditions of the Offer.

      (d) As soon as reasonably practicable on the date of commencement of the
Offer, the Company shall file with the Securities and Exchange Commission (the
"SEC") a combined Schedule TO and Schedule 13E-3 under cover of Schedule TO.
(The combined Schedule TO and Schedule 13E-3, together with all exhibits and
amendments, is collectively referred to as "Schedule TO.")

      The Schedule TO shall contain or shall incorporate by reference an offer
to purchase (the "Offer to Purchase") and the form of the related letter of
transmittal (the Schedule TO, the Offer to Purchase and such other documents,
together with all supplements and amendments thereto, being referred to herein
collectively as the "Offer Documents"). Each of the Offer Documents shall be
approved by Bankers


                                        3

prior to their filing with the SEC (which approval shall not be unreasonably
withheld, conditioned, or delayed).

       The Company agrees that the Offer Documents shall comply as to form in
all material respects with the Exchange Act and the Offer Documents, on the date
first published, sent or given to the Company's shareholders, shall not contain
any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. The Company shall promptly correct any information in the Offer
Documents if and to the extent that such information shall have become false or
misleading in any material respect, and the Company shall take all steps
necessary to amend or supplement the Offer Documents and to cause the Offer
Documents as so amended or supplemented to be filed with the SEC and the Offer
Documents as so amended or supplemented to be disseminated to the Company's
shareholders, in each case as and to the extent required by applicable federal
securities laws.

       Bankers hereby, agrees that it shall cooperate and shall cause its
counsel to cooperate with the Company and its counsel in the preparation of the
Offer Documents and in obtaining any clearances, consents or approvals thereof
under applicable law. Bankers shall, upon the request of the Company, promptly
provide the Company or its counsel with all documentation and information
regarding Bankers or its Affiliates, reasonably requested by the Company in
connection with the Offer Documents. Bankers hereby agrees that all such
documentation provided to the Company or its counsel will be true, correct and
complete, when provided and Bankers agrees that it will promptly correct any
information or documentation provided to the Company or its counsel, to the
extent it is no longer true, correct or complete.

       Anything herein to the contrary notwithstanding, the Company shall have
no responsibility for the truth, accuracy or completeness of any information
regarding or provide by Bankers or its Affiliates.

       Bankers, the Special Committee and each of their respective counsel shall
be given the reasonable opportunity to review and comment on the Offer Documents
and any amendments to the Offer Documents before they are filed with the SEC.
The Company shall provide Bankers and the Special Committee and their respective
counsel with a copy of any written comments or telephonic notification of any
oral comments from the SEC or its staff with respect to the Offer Documents
promptly after the comments are received.

Section 1.02 Company Action.

      The Company represents that:


                                        4

      (a) the Special Committee at its meeting duly called and held on August
15, 2002, by the unanimous vote of its members present and voting:

            (i) determined that the Offer and the Merger are advisable, fair to
      and in the best interests of the Public Shareholders;

            (ii) approved the terms of this Agreement and the transactions
      contemplated hereby as they relate to the Public Shareholders and
      unanimously agreed to recommend that the Board of Directors of the Company
      approve and authorize this Agreement and the transactions contemplated
      hereby; and

            (iii) resolved to recommend that the Public Shareholders accept the
      Offer and tender their Shares pursuant to the Offer; provided that such
      recommendation may be withdrawn, modified or amended if the Special
      Committee determines in good faith after consultation with independent
      legal counsel that its failure to take such action would violate its
      fiduciary duties under applicable law; and

      (b) The Board of Directors of the Company at its meeting duly called and
held on August 15, 2002, by unanimous vote of the directors present and voting:

            (i) determined that the Offer and the Merger are advisable, fair to
      and in the best interest of the Public Shareholders;

            (ii) approved this Agreement and the transactions contemplated
      hereby; and

            (iii) resolved to recommend that the Public Shareholders accept the
      Offer and tender their Shares pursuant to the Offer; provided that such
      recommendation may be withdrawn, modified or amended to the extent the
      Board of Directors, upon recommendation of the Special Committee,
      determines in good faith after consultation with independent legal counsel
      that its failure to take such action would violate the fiduciary duties of
      the Board of Directors under applicable law.

      (c) Houlihan Lokey Howard & Zukin Financial Advisors, Inc. (the "Advisor")
has delivered to the Special Committee a written opinion that, based on, and
subject to, the various assumptions and qualifications set forth in that
opinion, as of the date of this Agreement, the consideration to be received by
the holders of Shares (other than Bankers and Acquisition Subsidiary) pursuant
to the Offer and the Merger is fair to such holders from a financial point of
view. A copy of the opinion has been provided to Bankers, and the Company has
been authorized by the Advisor to include the opinion in its entirety, in the
Offer Documents; provided, however that


                                        5

any description of the content of the opinion shall be approved by the Advisor,
which approval will not be unreasonably withheld.

                                   ARTICLE II

                                   THE MERGER

Section 2.01 The Merger.

      As soon as practical after the satisfaction of the conditions provided in
Article VI, the parties hereto shall take all necessary and appropriate action
to cause the Merger to be effective in accordance with Section 607.1104 of the
FBCA.

      The parties shall file with the Department of State of the State of
Florida, articles of merger (the "Articles of Merger") executed in accordance
with the relevant provisions of the FBCA and shall make all other filings or
recordings required under the FBCA. The Merger shall become effective at such
time as the Articles of Merger are duly filed with the Department of State of
the State of Florida or at such other time as is permissible under the FBCA and
as Bankers and the Company shall agree and as specified in the Articles of
Merger (the time the Merger becomes effective being the "Effective Time").

Section 2.02 Articles Of Incorporation; By-Laws; Officers And Directors.

      Pursuant to the Merger:

      (a) the Amended and Restated Articles of Incorporation and the Amended and
Restated Bylaws of the Company as in effect immediately prior to the Effective
Time shall be the Articles of Incorporation and By-laws of the surviving
corporation following the Merger until thereafter changed or amended as provided
therein and with applicable law;

      (b) the directors of Acquisition Subsidiary immediately prior to the
Effective Time shall be the directors of the Surviving Corporation following the
Merger and until the earlier of their death, resignation or removal or until
their respective successors are duly elected or appointed and qualified; and

      (c) the officers of the Company immediately prior to the Effective Time
shall be the officers of the Surviving Corporation until the earlier of their
death, resignation or removal or until their respective successors are duly
elected or appointed and qualified.


                                        6

Section 2.03 Conversion of Shares.

      As of the Effective Time, by virtue of the Merger and without any action
on the part of the Company, Bankers, Acquisition Subsidiary or the holders of
any Shares:

      (a) Shares of Acquisition Subsidiary. Each share of common stock of
Acquisition Subsidiary which is issued and outstanding immediately prior to the
Effective Time shall be converted into and become one fully paid and
nonassessable share of common stock of the Surviving Corporation;

      (b) Capital Stock of the Company. Subject to Sections 2.03(c) and 2.04,
(i) each share of the Company Common Stock which is issued and outstanding
immediately prior to the Effective Time shall be converted into and become a
right to receive the Per Share Amount in cash and shall automatically be
canceled and retired and shall cease to exist; and (ii) each holder of a
certificate representing any such shares of the Company Common Stock shall, to
the extent such certificate represents such shares, cease to have any rights
with respect to such shares, except the right to receive the Per Share Amount
allocable to the shares represented by such certificate upon surrender of such
certificate in accordance with Section 2.06.

      (c) Cancellation of Treasury Stock and Bankers-Owned Stock. Any shares of
the Company Common Stock that are owned immediately prior to the Effective Time
by the Company as treasury stock and each of the Bankers Shares shall be
canceled and retired and shall cease to exist, and no consideration shall be
delivered in exchange for such shares. Each holder of a certificate representing
any such shares shall cease to have any rights with respect to such shares.

Section 2.04 Dissenting Shares.

      (a) Stockholders who own Shares immediately before the Effective Time who
comply with the requirements of Section 607.1320 of the FBCA regarding the
rights of dissenting shareholders shall be entitled to be paid the fair value of
the shares as determined under the procedures set forth in Section 607.1320 of
the FBCA.

      (b) Notwithstanding anything in this Agreement to the contrary, shares of
the Company Common Stock outstanding immediately prior to the Effective Time and
which are held by a shareholder who has properly exercised appraisal rights
thereto in accordance with Section 607.1320 of the FBCA ("Dissenting Shares"),
shall not be converted into a right to receive the Per Share Amount, unless such
holder fails to perfect or withdraws or otherwise loses such holder's right to
appraisal, if any. If, after the Effective Time, such holder fails to perfect or
withdraws or loses any such right to appraisal, each such share of such holder
shall


                                        7

be treated as a share that had been converted as of the Effective Time into the
right to receive the Per Share Amount, without interest, in accordance with
Section 2.03(b). The Company shall give Bankers:

            (i) prompt notice of any demands for appraisal of any shares of the
      Company Common Stock received by the Company; and

            (ii) the opportunity to participate in and direct all negotiations
      and proceedings with respect to any such demands. The Company shall not,
      without the prior written consent of Bankers, make any payment with
      respect to, or settle, offer to settle or otherwise negotiate, any such
      demands.

      (c) Bankers shall not, and shall cause its Affiliates and Subsidiaries
not, to exercise appraisal rights with respect to any of the Bankers Shares.

Section 2.05 Exchange of Certificates.

      (a) Exchange Agent. Prior to the Effective Time, the Company shall
designate an entity to act as exchange agent (the "Exchange Agent") for the
payment of the Per Share Amount for the holders of the Shares. As of the
Effective Time, Company shall have deposited with the Exchange Agent, for the
benefit of the holders of shares of the Company Common Stock, for exchange in
accordance with this Section 2.06, the aggregate amount of cash payable pursuant
to Section 2.03(b) hereof in exchange for outstanding shares of the Company
Common Stock and (the "Exchange Fund").

      (b) Exchange Procedures. Promptly after the Effective Time, the Exchange
Agent shall mail to each holder of record of a certificate or certificates which
immediately prior to the Effective Time represented issued and outstanding
shares of the Company Common Stock whose shares were converted into the right to
receive cash pursuant to Section 2.03(b) a letter of transmittal (which shall
specify that delivery shall be effected, and risk of loss and title to the
certificates representing such shares of the Company Common Stock shall pass,
only upon delivery of the certificates representing such shares of the Company
Common Stock to the Exchange Agent and shall be in such form and have such other
provisions as the Exchange Agent may reasonably specify), and instructions for
use in effecting the surrender of the certificates representing such shares of
the Company Common Stock, in exchange for the Per Share Amount. Upon surrender
to the Exchange Agent of a certificate or certificates representing shares of
the Company Common Stock and acceptance thereof by the Exchange Agent, the
holder thereof shall be entitled to the amount of cash into which the number of
shares of the Company Common Stock previously represented by such certificate or
certificates surrendered shall have been converted pursuant to this Agreement.
The Exchange Agent shall accept such certificates upon compliance with such
reasonable terms and conditions


                                        8

as the Exchange Agent may impose to effect an orderly exchange thereof in
accordance with normal exchange practices. After the Effective Time, there shall
be no further transfer on the records of the Company or its transfer agent of
certificates representing shares of the Company Common Stock and if such
certificates are presented to the Company for transfer, they shall be canceled
against delivery of the Per Share Amount allocable to the shares of the Company
Common Stock represented by such certificate or certificates to the record
holder. If any Per Share Amount is to be remitted to a name other than that in
which the certificate for the Company Common Stock surrendered for exchange is
registered, it shall be a condition of such exchange that the certificate so
surrendered shall be properly endorsed, with signature guaranteed, or otherwise
in proper form for transfer and that the person requesting such exchange shall
pay to the Company or its transfer agent any transfer or other taxes required by
reason of the payment of the Per Share Amount to a name other than that of the
registered holder of the certificate surrendered, or establish to the
satisfaction of the Company or its transfer agent that the tax has been paid or
is not applicable. Until surrendered as contemplated by this Section 2.06, each
certificate for shares of the Company Common Stock shall be deemed at any time
after the Effective Time to represent only the right to receive upon surrender
the Per Share Amount allocable to the shares represented by such certificates
contemplated by Section 2.03(b). No interest will be paid or will accrue on any
amount payable as a Per Share Amount. Subject to completion of the documentation
referred to above, the Per Share Amount shall be paid at the Effective Time to
holders of the Company Common Stock.

      (c) No Further Ownership Rights in the Company Stock. The Per Share Amount
paid upon the surrender for exchange of certificates representing shares of the
Company Common Stock in accordance with the terms of this Section 2.06 shall be
deemed to have been paid in full satisfaction of all rights pertaining to the
shares of the Company Common Stock represented by such certificates.

      (d) Termination of Exchange Fund. Any portion of the Exchange Fund
(including any interest and other income received by the Exchange Agent in
respect of all such funds) which remains undistributed to the holders of the
certificates representing shares of the Company Common Stock for six months
after the Effective Time shall be delivered to the Surviving Corporation, upon
demand, and any holders of shares of the Company Common Stock prior to the
Merger who have not theretofore complied with this Section 2.06 shall thereafter
look only to the Surviving Corporation and Bankers and only as general creditors
thereof for payment of their claim for the Per Share Amount to which they may be
entitled.

      (e) No Liability. No party to this Agreement shall be liable to any Person
(as hereinafter defined) in respect of any amount from the Exchange Fund
delivered to a public official pursuant to any applicable abandoned property,
escheat or similar law.


                                        9

      (f) Lost Certificates. In the event any certificate or certificates
representing shares of the Company Common Stock shall have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the Person claiming
such certificate or certificates to be lost, stolen or destroyed, the Exchange
Agent will issue in exchange for such lost, stolen or destroyed certificate the
Per Share Amount deliverable in respect thereof as determined in accordance with
this Section 2.06, provided that the Person to whom the Per Share Amount is paid
shall, as a condition precedent to payment, indemnify Bankers in an agreement
reasonably satisfactory to it against any claim that may be made against Bankers
or the Company with respect to the certificate claimed to have been lost, stolen
or destroyed.

                                   ARTICLE III
                  REPRESENTATIONS AND WARRANTIES OF THE COMPANY

      The Company represents and warrants to Bankers and Acquisition Company as
follows:

Section 3.01 Capitalization.

      The authorized capital stock of the Company consists of 100,000,000 shares
of Company Common Stock (par value $0.01) and 20,000,000 shares of preferred
stock (par value $0.01). As of the close of business on August 14, 2002 (i)
there were outstanding 12,276,063 shares of Company Common Stock, (ii) no shares
of the Company Common Stock were held in the Company's treasury, (iii) no shares
of the Company preferred stock were outstanding and (iv) 454,750 shares of
Company Common Stock were subject to outstanding options to purchase Company
Common Stock ("Company Stock Options"). Except as set forth above, as of this
date of the Agreement, no shares of capital stock or other voting securities of
the Company were outstanding. All outstanding shares of capital stock of the
Company have been duly authorized and validly issued and are fully paid and
nonassessable. Except for the Company Stock Options there are no outstanding
options, warrants or other rights to acquire from the Company, and no preemptive
or similar rights, subscription or other rights, convertible or exchangeable
securities, agreements, arrangements or commitments of any character, relating
to the capital stock of the Company, obligating the Company to issue, transfer
or sell, any capital stock, voting securities or securities convertible into or
exchangeable for capital stock or voting securities of the Company or obligating
the Company to grant, extend or enter into any such option, warrant,
subscription or other right, convertible or exchangeable security, agreement,
arrangement or commitment. The Company has delivered to Bankers a complete and
accurate list of all outstanding Company Stock Options including the names of
persons holding such options, the number of options held by each person and the
grant date and exercise price for each such option. No options to purchase
Company Common Stock will be granted by the Company after the date of this
Agreement.


                                       10

Section 3.02 Authorization.

         The Company has all requisite corporate power and authority to enter
into this Agreement to carry out its obligations under this Agreement and to
consummate the transactions contemplated by this Agreement. The execution and
delivery of this Agreement and the consummation of the transactions contemplated
hereby have been duly authorized by all requisite corporate action on the part
of the Company. This Agreement has been duly executed and delivered by the
Company and, assuming the due authorization, execution and delivery hereof by
Bankers and Acquisition Subsidiary, constitutes the valid and binding
obligation of the Company, enforceable against the Company except as such
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization or similar laws affecting creditors' rights generally or by
general equitable principles.

Section 3.03 Governmental Authorization; Non-Contravention.

         The execution, delivery and performance by the Company of this
Agreement and the consummation by the Company of the transactions contemplated
hereby require no action by or in respect of, or filing with, any governmental
body, agency, official or authority other than (a) the filing of the Articles of
Merger in connection with the Merger in accordance with FBCA, (b) applicable
requirements under the Exchange Act and (c) other actions or filings which if
not taken or made would not, individually or in the aggregate, reasonably be
likely to have a Material Adverse Effect on the Company or prevent or materially
delay the Company's consummation of the Offer or Merger. The execution, delivery
and performance by the Company of this Agreement and the consummation by the
Company of the transactions contemplated hereby do not and will not contravene
or conflict with the amended and restated articles of incorporation or by-laws
of the Company, or, except as would not be reasonably likely to have a Material
Adverse Effect, (a) contravene or conflict with or constitute a violation of any
provision of any Law binding upon or applicable to the Company or any of its
Subsidiaries, (b) constitute a default under or give rise to any right of
termination, cancellation or acceleration of any right or obligation of the
Company or any of its Subsidiaries or to a loss of any benefit to which the
Company or any of its Subsidiaries is entitled under any provision of any
agreement, contract, lease or other instrument binding upon the Company or any
of its Subsidiaries or any license, franchise, permit or other similar
authorization held by the Company or any of its Subsidiaries, or (c) result in
the creation or imposition of any lien or encumbrance on any asset of the
Company or any of its Subsidiaries.

Section 3.04 SEC Reports.

         The Company has filed all reports and schedules required to be filed
with the SEC since January 1, 2001 (collectively the "SEC Documents"). As of its
respective date, each SEC Document complied in all material respects with the
requirements of


                                       11

the Exchange Act and did not contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading. The audited consolidated financial statements of
the Company, the unaudited interim financial statements included in the SEC
Documents and the draft balance sheet as at June 30, 2002, and the statement of
operations and cash flows for the period then ended provided to Bankers on the
date hereof, complied as to form in all material respects with applicable
accounting requirements and published rules and regulations of the SEC with
respect thereto, and fairly present the financial condition and the results of
operations, changes in stockholders' equity and cash flows of the Company and
the consolidated Company Subsidiaries as at the respective dates and for the
periods referred to in such financial statements, all in accordance with United
States generally accepted accounting principles applied on a basis consistent
with prior periods, subject in the case of interim statements to normal
recurring year-end adjustments that have not been and are not likely to be
material in amount, and the absence of notes.

Section 3.05 Absence of Certain Changes.

         Since June 30, 2002 there has not been any event, occurrence or
development which individually or in the aggregate, has had, or would reasonably
be likely to have, a Material Adverse Effect (other than events, occurrences or
developments related directly or indirectly to Bankers or its Affiliates). Since
June 30, 2002, the Company and its Subsidiaries have conducted their respective
businesses in the ordinary course, consistent with past practice. The activities
of the Special Committee in the review of strategic alternatives for the Company
and the transactions contemplated by this Agreement shall be considered
exceptions to this representation and warranty.

Section 3.06 No Undisclosed Material Liabilities.

         There are no liabilities of the Company or any Subsidiary of the
Company of any kind whatsoever, whether accrued, contingent, absolute,
determined, determinable or otherwise, other than:


                                       12

         (a) liabilities disclosed or provided for in the balance sheet as at
June 30, 2002 thereto;

         (b) liabilities incurred since June 30, 2002 in the ordinary course of
business consistent with past practice;

         (c) liabilities disclosed in the SEC Documents filed prior to the date
of this Agreement;

         (d) liabilities under contracts entered into in the ordinary course of
business consistent with past practice;

         (e) liabilities related to the review, negotiation, approval or
performance of this Agreement and the actions contemplated hereby; and

         (f) liabilities relating to transactions with Bankers and its
Affiliates.

Section 3.07 Litigation.

         As of the date hereof, there is no action, suit, investigation or
proceeding (except any active suit, investigation or proceeding caused by or
relating to Bankers) pending against, or to the knowledge of any of the
Executive Officers of the Company threatened against or affecting, the Company
or any of its Subsidiaries or any of their respective properties or any of their
respective officers or directors which, if adversely determined, would
individually or in the aggregate be reasonably likely to have a Material Adverse
Effect.

Section 3.08 Compliance With Applicable Laws.

         (a) The Company and its Subsidiaries have, since June 30, 2002
conducted their business and operations in compliance with all applicable Laws
except for any failures to be in compliance that, individually or in the
aggregate, would not reasonably be likely to have a Material Adverse Effect.

         (b) Neither the Company nor any Subsidiary has failed to obtain and,
where applicable renew, any licenses, permits, franchises or other governmental
authorizations necessary to the ownership of its properties or to the conduct of
its business, which failure would, individually, or in the aggregate, reasonably
be likely to have a Material Adverse Effect, and, after giving effect to the
transactions contemplated hereby, all such licenses, permits, franchises and
other governmental authorizations will continue to be valid and in full force
and effect except where the failure to be valid and in full force and effect (i)
would not individually or in the aggregate, be reasonably likely to have a
Material Adverse Effect or (ii) relates directly or indirectly to Bankers or its
Affiliates.


                                       13

Section 3.09 Brokers and Finders.

         Other than Advisor, the Company has not employed any broker, finder,
advisor or intermediary in connection with the transactions contemplated by this
Agreement that would be entitled to a broker's, finder's or similar fee or
commission in connection therewith or upon the consummation thereof. The Company
shall pay any fees due to Advisor.

                                   ARTICLE IV
                         REPRESENTATIONS AND WARRANTIES
                      OF BANKERS AND ACQUISITION SUBSIDIARY

         Each of Bankers (for purposes of these representations and warranties,
Bankers meaning each of BIG, BIC and BSIC individually) and Acquisition
Subsidiary hereby represents and warrants, jointly and severally, to the Company
as follows:

Section 4.01 Corporate Existence.

         Bankers and Acquisition Subsidiary are corporations duly incorporated,
validly existing and in good standing under the laws of the State of Florida.

Section 4.02 Corporate Authorization.

         Bankers and Acquisition Subsidiary each has all requisite corporate
power and authority to enter into this Agreement to carry out its obligations
under this Agreement and to consummate the transactions contemplated by this
Agreement. The execution and delivery of this Agreement and the consummation of
the transactions contemplated hereby have been duly authorized by all requisite
corporate action on the part of Bankers and Acquisition Subsidiary. This
Agreement has been duly executed and delivered by each of Bankers and
Acquisition Subsidiary and assuming the due authorization, execution and
delivery hereof by the Company, constitutes the valid and binding obligation of
Bankers and Acquisition Subsidiary enforceable against Bankers and Acquisition
Subsidiary except as such enforceability may be limited by applicable
bankruptcy, insolvency, reorganization or similar laws affecting creditors'
rights generally or by general equitable principles.

Section 4.03 Acquisition Subsidiary's Ownership and Operations.

         All of the issued and outstanding shares of Acquisition Subsidiary are
owned by BIC and BSIC. Acquisition Subsidiary was formed solely for the purpose
of engaging in the transactions contemplated by this Agreement and has not
engaged in


                                       14

any business activities or conducted any operations other than in connection
with such transactions.

Section 4.04 Governmental Authorization; Non-Contravention.

         The execution, delivery and performance by Bankers and Acquisition
Subsidiary of this Agreement and the consummation by Bankers and Acquisition
Subsidiary of the transactions contemplated hereby require no action by or in
respect of, or filing with, any governmental body, agency, official or authority
other than (a) the filing of the Articles of Merger in connection with the
Merger in accordance with FBCA, (b) applicable requirements under the Exchange
Act and (c) other actions or filings which if not taken or made would not,
individually or in the aggregate, prevent or materially delay the consummation
of the Offer or Bankers' and Acquisition Subsidiary's consummation of the
Merger. The execution, delivery and performance by Bankers and Acquisition
Subsidiary of this Agreement and the consummation by Bankers and Acquisition
Subsidiary of the transactions contemplated hereby do not and will not (a)
contravene or conflict with the restated articles of incorporation or by-laws of
Bankers or Acquisition Subsidiary, (b) contravene or conflict with or constitute
a violation of any provision of any material Law binding upon or applicable to
Bankers and Acquisition Subsidiary or any of their Subsidiaries, (c) constitute
a default under or give rise to any right of termination, cancellation or
acceleration of any right or obligation of Bankers or Acquisition Subsidiary or
to a loss of any benefit to which Bankers or Acquisition Subsidiary is entitled
under any provision of any material agreement, contract, lease or other
instrument binding upon Bankers or Acquisition Subsidiary or any of their
Subsidiaries or any material license, franchise, permit or other similar
authorization held by Bankers or Acquisition Subsidiary or any of their
Subsidiaries, or (d) result in the creation or imposition of any material lien
or encumbrance on any asset of Bankers or Acquisition Subsidiary or any of their
Subsidiaries.

Section 4.05 Brokers and Finders.

         Neither Bankers nor Acquisition Subsidiary has employed any broker,
finder, advisor or intermediary in connection with the transactions contemplated
by this Agreement which would be entitled to a broker's, finder's or similar fee
or commission in connection therewith or upon the consummation thereof.

Section 4.06 Interests in the Company.

         BIC and BISC own the Bankers Shares. No other corporate affiliate of
Bankers owns shares of Company Common Stock.


                                       15

                                    ARTICLE V
                        CERTAIN COVENANTS AND AGREEMENTS

Section 5.01 Conduct Of Business.

         From the date of this Agreement until the earlier of (i) the Effective
Time or (ii) the termination of this Agreement in accordance with Article VII
hereof, except as otherwise expressly contemplated by this Agreement or
consented to in writing by Bankers:

         (a) the Company and each of the Subsidiaries shall operate the
businesses conducted by them in the ordinary and usual course and shall use
their commercially reasonable efforts to preserve intact their present business
organizations and use commercially reasonable efforts to preserve their
relationships with material customers and suppliers;

         (b) the Company shall not, and shall not permit any Subsidiary to:

                  (i) change any of the accounting principles or practices used
         by it, except as may be required as a result of a change in law or in
         generally accepted accounting principles;

                  (ii) pay, discharge or satisfy any claims, liabilities or
         obligations (absolute, accrued, asserted or unasserted, contingent or
         otherwise), other than (A) the payment, discharge, or satisfaction in
         the ordinary course of business and consistent with past practice, (B)
         payment of any liabilities recorded on the balance sheet as of June 30,
         2002, (C) payment of reasonable expenses incurred in connection with
         activities of the Special Committee and with the Offer and the Merger
         and (D) payment of amounts paid to resolve the class action lawsuits
         currently pending against the Company consolidated under Case No.
         8:00-CV-2013-T-26MAP; provided, however, that Bankers will not
         unreasonably withhold, delay or condition its consent to any actions
         proposed to be taken by the Company which would otherwise be prohibited
         by this clause (ii);

                  (iii) issue any shares of its Company Common Stock or its
         preferred stock except pursuant to Company Stock Options outstanding as
         of the date of this Agreement; or

                  (iv) amend either its articles of incorporation or by-laws;

         (c) except for actions made in the ordinary course of business
consistent with past practice, the Company shall not, and shall not permit any
Subsidiary to increase the compensation of its directors, officers or employees,
pay any bonus, grant any option to purchase any Company Common Stock, grant any
severance or


                                       16

termination pay to, or enter into or amend any employment or severance agreement
with, any director, officer or other employee of the Company or any Subsidiary,
establish, adopt, enter into or amend any collective bargaining, bonus, profit
sharing, thrift, compensation, stock option, restricted stock, pension,
retirement, deferred compensation, employment, termination, severance or other
plan, agreement, trust, fund, policy or arrangement for the benefit of any
current or former directors, officers or employees, materially change any
actuarial assumption or other assumption used to calculate funding obligations
with respect to any pension or retirement plan, or change the manner in which
contributions to any such plan are made or the basis on which such contributions
are determined, except, in each case, as may be required by law or contractual
commitments which are existing as of the date of this Agreement;

         (d) except for such actions as may be required by law, the Company
shall not, and shall not permit any Subsidiary to, take any action that will
result in any of the representations and warranties of the Company set forth in
Section 1.02 and Article III of this Agreement becoming untrue or and, except
for actions as may be required by law, neither Bankers (or its Affiliates) or
the Company will take any action which will result in any of the conditions to
the Merger set forth in Article VI not being satisfied.

Section 5.02 Announcement.

         Neither the Company, on the one hand, nor Bankers or Acquisition
Subsidiary, on the other hand, shall issue any press release or otherwise make
any public statement with respect to this Agreement and the transactions
contemplated hereby without the prior consent of the other (which consent shall
not be unreasonably withheld, conditioned or delayed), except as may be required
by applicable Law or stock exchange regulation. Notwithstanding anything in this
Section 5.02 to the contrary, Bankers, Acquisition Subsidiary and the Company
will, to the extent practicable, consult with each other before issuing, and
provide each other the opportunity to review and comment upon, any such press
release or other public statements with respect to this Agreement and the
transactions contemplated hereby whether or not required by Law.

Section 5.03 Notification of Certain Matters.

         The Company shall give prompt notice to Bankers, and Bankers shall give
prompt notice to the Company, of:

         (a) the occurrence or nonoccurrence of any event the occurrence, or
nonoccurrence, of which would be reasonably likely to cause any representation
or warranty contained in this Agreement to be untrue or inaccurate in any
material respect at or prior to the Effective Time; and


                                       17

         (b) any material failure of the Company or Bankers, as the case may be,
to comply with or satisfy any covenant, condition or agreement to be complied
with or satisfied by it hereunder, provided that the delivery of any notice
pursuant to this Section 5.03 shall not limit or otherwise affect the remedies
available hereunder to the party receiving such notice.

Section 5.04 Directors' and Officers' Indemnification.

         (a) Bankers shall cause the articles of incorporation and the by-laws
of the Surviving Corporation to contain the provisions with respect to
indemnification and exculpation from liability set forth in the Company's
restated articles of incorporation and by-laws on the date of this Agreement,
which provisions shall not be amended, repealed or otherwise modified for a
period of seven years from the Effective Time in any manner that would adversely
affect the rights thereunder of individuals who on or prior to the Effective
Time were directors, officers, employees or agents of the Company, unless such
modification is required by law. Bankers hereby guarantees the payment
obligations of the Surviving Corporation arising from the indemnification and
exculpation provisions referred to in the preceding sentence.

         (b) Bankers or the Surviving Corporation shall maintain the Company's
existing officers' and directors' liability insurance covering claims relating
to actions taken or omitted prior to the Effective Time for a period of not less
than four years after the Effective Time; provided that Bankers may substitute
therefor policies of substantially equivalent coverage and amounts containing
terms no less favorable in the aggregate to the former directors or officers of
the Company to which such insurance applies; provided, further, that in no event
shall the Company be required to pay in the third and fourth years after the
Effective Time aggregate premiums for insurance under this Section 5.04(b) in
the third and fourth years after the Effective Time in excess of 200% of the
aggregate premiums paid by the Company for the second year after the Effective
Time on an annualized basis for such purpose; and provided, further, that if
Bankers or the Surviving Corporation is unable to obtain the amount of insurance
required by this Section 5.04(b) for such aggregate premium, Bankers or the
Surviving Corporation shall obtain as much insurance as can be obtained for an
annual premium not in excess of 200% of the aggregate premiums paid by the
Company for the second year after the Effective Time on an annualized basis for
such purpose.

Section 5.05 Access.

         Between the date of this Agreement and the Effective Time, the Company
shall (and shall cause each of the Subsidiaries to) afford the officers,
employees, accountants, counsel, financing sources and other representatives of
Bankers, reasonable access to all of its properties, books, contracts,
commitments and records


                                       18

and during such period the Company shall (and shall cause each of the
Subsidiaries to) furnish promptly to Bankers:

         (a) a copy of each report, schedule, registration statement and other
document filed or received by it during such period pursuant to the requirements
of federal securities laws; and

         (b) all other information concerning its business, properties and
personnel as Bankers may reasonably request.

Section 5.06 Resignation of Directors.

         Prior to the Effective Time, the Company shall cause each member of its
Board of Directors to execute and deliver a letter effectuating his or her
resignation as a director of such Board effective immediately prior to the
Effective Time.

Section 5.07 No Tender of Bankers' Shares.

         Bankers shall not, and shall cause its Affiliates and Subsidiaries
(including, but not limited to Acquisition Subsidiary) not to, tender any of the
Bankers Shares in response to the Offer to Purchase.

Section 5.08 Loan.

         If requested by BIG, pursuant to the terms of the Loan Document, no
later than three business days from the date of this Agreement, the Company
shall loan and advance to BIG and/or Bankers Underwriters, Inc., a wholly owned
subsidiary of BIG ("BUI"), Seven Million Dollars ($7,000,000) in immediately
available funds to an account designated by BIG, provided that BIG and BUI shall
have executed and delivered to the Company (i) a Credit and Security Agreement;
(ii) a Revolving Line of Credit Master Promissory Note (the "Note"); and (iii) a
Collateral Assignment of Flood Book (the "Collateral Assignment"), all in
substantially the form attached hereto as Annex B together with such related
instruments and documentation as the Company shall reasonably require
(collectively, the "Loan Documents"). As security for payment of the Note, BIG
shall have caused BUI to grant to the Company a first priority security interest
in all of its flood insurance agency contracts pursuant to the terms of the
Collateral Assignment.

Section 5.09 Bankers Static Interest.

         Bankers and Acquisition Subsidiary hereby agree that from the date
hereof through the earlier of (i) the Effective Time, or (ii) the termination of
this Agreement in accordance with Article VII hereof, neither Bankers,
Acquisition Subsidiary nor their respective Affiliates or Subsidiaries will:


                                       19

         (a) acquire, purchase or otherwise become the owner of the Company
Common Stock other than the Bankers Shares;

         (b) give, sell, transfer or otherwise dispose of any of the Bankers
Shares; or

         (c) pledge any of the Bankers Shares, unless it shall have secured the
agreement of the party to whom such shares have been pledged not to tender any
of the Bankers Shares in response to the Offer to Purchase.

Section 5.10 Stock Options.

         The Company shall, within three business days from the date of this
Agreement, obtain and deliver to Bankers consents of all of its Executive
Officers and directors to the cancellation of all outstanding options to
purchase Company Common Stock which they hold. If requested by Bankers, the
Company shall use all commercially reasonable efforts to obtain consents of
employees specified by Bankers to the cancellation of their outstanding options
to purchase Company Common Stock within such period of time as may be reasonably
requested by Bankers. The foregoing consents shall be in a form which is
reasonably satisfactory to Bankers.

                                   ARTICLE VI
                              CONDITIONS PRECEDENT

Section 6.01 Conditions to Each Party's Obligation to Effect the Merger.

         The respective obligation of each party to effect the Merger shall be
subject to the satisfaction of each of the following conditions (any of which
may be waived by the parties hereto in writing, in whole or in part, to the
extent permitted by applicable law):

         (a) No Injunction or Proceeding. No order or injunction of a court of
competent jurisdiction shall be in effect, no Law shall have been enacted by a
governmental entity and no action, suit or proceeding shall have been
instituted, which prohibits the consummation of the Merger or materially
challenges the transactions contemplated hereby.


                                       20

         (b) Consents. Other than filing the Articles of Merger, and except as
would not be reasonably likely to have a Material Adverse Effect, all consents,
approvals and authorizations of and filings with governmental entities required
for the consummation of the transactions contemplated hereby, if any, shall have
been obtained or effected or filed.

         (c) Purchase of Shares in Offer. The Company shall have purchased
Shares pursuant to the Offer.

                                   ARTICLE VII
                        TERMINATION, AMENDMENT AND WAIVER

Section 7.01 Termination.

         This Agreement may be terminated and the Offer and Merger may be
abandoned at any time prior to the Effective Time:

         (a) by the mutual written consent of the Boards of Directors of
Bankers, Acquisition Subsidiary and the Company (upon recommendation of the
Special Committee);

         (b) by either the Company (upon the recommendation of the Special
Committee), on the one hand, or Bankers and Acquisition Subsidiary, on the other
hand, if prior to the purchase of any Shares by the Company:

                  (i) (x) the Offer (including all extensions) shall have
         expired without any Shares being purchased pursuant to the Offer or (y)
         the Company shall not have accepted for payment any Shares pursuant to
         the Offer by December 31, 2002, or, if the offer has been extended
         after December 31, 2002 because of an order or injunction issued by a
         governmental entity or a court of law, by January 31, 2003; provided,
         however, that the right to terminate this Agreement under this Section
         7.01(b)(i) shall not be available to any party whose failure to fulfill
         any obligation under this Agreement has been the cause of, or resulted
         in, the failure of the Company to purchase the Shares pursuant to the
         Offer on or before such date;

                  (ii) any governmental entity shall have issued an order,
         decree or ruling or taken any other action (which order, decree, ruling
         or other action the parties to this Agreement shall use their
         reasonable efforts to lift), which permanently restrains, enjoins or
         otherwise prohibits the acceptance for payment of, or payment for,
         Shares pursuant to the Offer or the Merger and such order, decree,
         ruling or other action shall have become final and nonappealable; or


                                       21

                  (iii) if the Board of Directors of the Company or the Special
         Committee shall have taken any of the actions specified in Section
         (b)(iv) of Annex A;

         (c) by the Company (upon recommendation of the Special Committee) prior
to the purchase of any shares by the Company, if Bankers or Acquisition
Subsidiary shall have breached in any material respect any of their respective
representations, warranties, covenants or other agreements contained in this
Agreement or the Loan Documents, and the breach cannot be or has not been cured
within 10 days after the giving of written notice by the Company to Bankers or
Acquisition Subsidiary, as applicable; or

         (d) by Bankers, if.

                  (i) before the purchase of Shares pursuant to the Offer, (A)
         the Company shall have breached in any material respect any
         representation, warranty, covenant or other agreement contained in this
         Agreement, and the breach cannot be or has not been cured within 10
         days after the giving of written notice to the Company, or (B) a change
         has occurred such that the conditions in Section (b)(ii) of Annex A
         could not be satisfied as of the expiration of the Offer (including
         extensions); or

                  (ii) if the loan has been requested by BIG, the Company has
         not fully complied with its obligations under Section 5.08.

Section 7.02 Effect of Termination.

         If this Agreement is terminated as provided in Section 7.01, written
notice of such termination shall be given by the terminating party or parties to
the other party or parties specifying the provision of this Agreement pursuant
to which such termination is made, and this Agreement shall become null and void
and there shall be no liability on the part of Bankers, Acquisition Subsidiary
or the Company (except as set forth in this Section 7.02 which shall survive any
termination of this Agreement); provided that nothing in this Agreement shall
relieve any party from any liability or obligation with respect to any material
breach of this Agreement.

Section 7.03 Amendment.

         The parties may amend this Agreement in writing; provided, however,
that any amendment of this Agreement on behalf of the Company shall be subject
to the approval of the Board of Directors of the Company which approval shall be
given only if recommended by the Special Committee.


                                       22

                                  ARTICLE VIII
                                  MISCELLANEOUS

Section 8.01 Nonsurvival of Representations and Warranties.

         None of the representations and warranties in this Agreement or in any
instrument delivered pursuant to this Agreement shall survive the Effective
Time. All such representations and warranties will be extinguished on
consummation of the Merger and neither the Company, any Subsidiary nor any of
its officers, directors or employees or shareholders shall be under any
liability whatsoever with respect to any such representation or warranty after
such time. This Section 8.01 shall not limit any covenant or agreement of the
parties which by its terms contemplates performance after the Effective Time.

Section 8.02 Expenses.

         Except as specifically contemplated by this Agreement, all costs and
expenses incurred in connection with this Agreement and the consummation of the
transactions contemplated by this Agreement shall be paid by the party incurring
such expenses.

Section 8.03 Applicable Law.

         This Agreement and the legal relations between the parties hereto shall
be governed by and construed in accordance with the laws of the State of
Florida, without regard to principles of conflicts of law that would require
application of any other law.

Section 8.04 Notices.

         All notices and other communications under this Agreement shall be in
writing and shall be deemed to have been duly given or made as follows:

         (a) if sent by registered or certified mail in the United States,
return receipt requested, upon receipt;

         (b) if sent by reputable overnight air courier (such as DHL or Federal
Express), two business days after being sent;

         (c) if sent by facsimile transmission, with a copy mailed on the same
day in the manner provided in clauses (a) or (b) above, when transmitted and
receipt is confirmed by telephone; or

         (d) if otherwise actually personally delivered, when delivered.


                                       23

All notices and other communications under this Agreement shall be sent or
delivered as follows:

         If to the Company, to:

         Insurance Management Solutions Group, Inc.
         360 Central Avenue
         St. Petersburg, Florida 33701

         with a copies to:

         Fowler White Boggs Banker P.A.
         501 E. Kennedy Boulevard, Suite 1700
         Tampa, Florida 33602
         Attention:   R. Alan Higbee, Esq.

         and:

         Foley & Lardner
         One IBM Plaza
         330 North Wabash Avenue
         Suite 3300
         Chicago, Illinois 60611
         Attention:   Todd B. Pfister, Esq.

         If to Bankers or Acquisition Subsidiary, to:

         360 Central Avenue
         St. Petersburg, Florida 33701
         Attention:   Robert M. Menke

         with a copy to:

         Skadden, Arps, Slate, Meagher & Flom LLP
         One Beacon Street, 31st Floor
         Boston, MA 02108-3194
         Telephone:   (617) 573-4800
         Facsimile:   (617) 573-4822
         Attention:   Margaret A. Brown, Esq.

         Each party may change its address by written notice in accordance with
this Section.


                                       24

Section 8.05 Entire Agreement.

         This Agreement (including the Loan Documents and the other documents
and instruments referred to in this Agreement) contains the entire understanding
of the parties with respect to the subject matter contained in this Agreement,
and supersedes and cancels all prior agreements, negotiations, correspondence,
undertakings and communications of the parties, oral or written, respecting such
subject matter.

Section 8.06 Assignment.

         Neither this Agreement nor any of the rights, interests or obligations
under this Agreement shall be assigned by any of the parties (whether by
operation of law or otherwise) without the prior written consent of the other
parties. Subject to the first sentence of this Section 8.06, this Agreement will
be binding upon, inure to the benefit of and be enforceable by, the parties and
their respective successors and assigns.

Section 8.07 Headings.

         The article, section and paragraph headings contained in this Agreement
are for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.

Section 8.08 Counterparts.

         This Agreement may be executed in one or more counterparts, each of
which shall be deemed to be an original but all of which shall be considered one
and the same agreement.

Section 8.09 No Third Party Beneficiaries.

         Except as provided in Section 5.04, nothing in this Agreement, express
or implied, is intended to confer upon any person or entity not a party to this
Agreement any rights or remedies under or by reason of this Agreement.

Section 8.10 Severability, Enforcement.

         Any term or provision of this Agreement that is invalid or
unenforceable in any jurisdiction shall, as to that jurisdiction, be ineffective
to the extent of such invalidity or unenforceability without rendering invalid
or unenforceable the remaining terms and provisions of this Agreement or
affecting the validity or enforceability of any of the terms or provisions of
this Agreement in any other


                                       25

jurisdiction. If any provision of this Agreement is so broad as to be
unenforceable, the provisions shall be interpreted to be only so broad as is
enforceable.

Section 8.11 Certain Definitions.

         As used in this Agreement, the following terms shall have the meanings
set forth in this section:

         "Affiliate" shall mean and include any corporation, partnership,
association, trust or other Person who directly or indirectly controls or is
controlled by, or is under common control with a referenced Person; provided,
however, that the Company and its Subsidiaries shall not be deemed to be
Affiliates of Bankers.

         "Executive Officers" means, with respect to the Company, David Howard,
the President of the Company and Robert Gantley, the Chief Operating Officer of
the Company.

         "Law" shall mean any federal, state, local or foreign law, statute,
ordinance, rule, regulation, order, judgment or decree, administrative or
judicial decision, and any other executive or legislative proclamation.

         "Person" shall mean and include any individual, partnership,
corporation, trust, unincorporated organization, association or a government or
any department, agency or political subdivision thereof.

         "Material Adverse Effect" shall mean any adverse change in the
business, assets, liabilities, financial condition or results of operations of
the Company and its Subsidiaries taken as a whole or any material adverse effect
on the ability of the Company to perform its obligations under this Agreement or
to consummate the transactions contemplated hereby.

         "Subsidiary" means any corporation, joint venture, partnership, limited
liability company or other entity of which the Company, directly or indirectly,
owns or controls capital stock (or other equity interests) representing more
than FIFTY percent of the general voting power under ordinary circumstances of
such entity.

Section 8.12 Interpretation.

         (a) When a reference is made in this Agreement to a section or article,
such reference shall be to a section or article of this Agreement unless
otherwise clearly indicated to the contrary.

         (b) Whenever the words "include," "includes" or "including" are used in
this Agreement, they shall be deemed to be followed by the words "without
limitation."


                                       26

         (c) The words "hereof," "herein" and "herewith" and words of similar
import shall, unless otherwise stated, be construed to refer to this Agreement
as a whole and not to any particular provision of this Agreement, and article,
section, paragraph, exhibit and schedule references are to the articles,
sections, paragraphs, exhibits and schedules of this Agreement unless otherwise
specified.

         (d) The plural of any defined term shall have a meaning correlative to
such defined term, and words denoting any gender shall include all genders.
Where a word or phrase is defined herein, each of its other grammatical forms
shall have a corresponding meaning.

         (e) A reference to any party to this Agreement or any other agreement
or document shall include such party's successors and permitted assigns.

         (f) A reference to any legislation or to any provision of any
legislation shall include any amendment, modification or re-enactment thereof,
any legislative provision substituted therefore and all regulations and
statutory instruments issued thereunder or pursuant thereto.

         (g) The parties have participated jointly in the negotiation and
drafting of this Agreement. In the event an ambiguity or question of intent or
interpretation arises, this Agreement shall be construed as if drafted jointly
by the parties, and no presumption or burden of proof shall arise favoring or
disfavoring any party by virtue of the authorship of any provision of this
Agreement.

                      (last page before the signature page)


                                       27

         The parties have duly executed this Agreement and Plan of Merger as of
the date first above written.


BANKERS INSURANCE GROUP, INC.

By:               /s/ David B. Snyder
       --------------------------------------
Title: Vice President and Assistant Secretary
       --------------------------------------

BANKERS INSURANCE COMPANY

By:               /s/ David K. Meehan
       --------------------------------------
Title:              President
       --------------------------------------


BANKERS SECURITY INSURANCE COMPANY

By:               /s/ David K. Meehan
       --------------------------------------
Title:              President
       --------------------------------------


BANKERS MANAGEMENT CORPORATION

By:               /s/ David B. Snyder
       --------------------------------------
Title: Vice President and Assistant Secretary
       --------------------------------------


INSURANCE MANAGEMENT SOLUTIONS GROUP, INC.

By:               /s/ D.M. Howard
       --------------------------------------
Title:            President/CEO
       --------------------------------------


                                       28

                                    ANNEX A

         Certain Conditions of the Offer. Notwithstanding any other provisions
of the Offer, the Company may not, and shall not be required to, accept for
payment or, subject to any applicable rules and regulations of the SEC,
including Rule 14e-1(c) under the Exchange Act (relating to Acquisition
Subsidiary's obligations to pay for or return tendered Shares promptly after
termination or withdrawal of the Offer), pay for, and may delay the acceptance
for payment of or, subject to the restriction referred to above, the payment
for, any tendered Shares, and may terminate or amend the Offer as to any Shares
not then paid for, if:

         (a) the Minimum Condition has not been satisfied; or

         (b) at any time on or after the date of the Agreement and before any
Shares are accepted for payment pursuant to the Offer, any of the following
events shall occur:

                  (i) there shall have been filed any suit, action or proceeding
which:

                           (A) challenges the acquisition by the Company of any
Shares pursuant to the Offer or seeks to restrain or prohibit the making or
consummation of the Offer or the Merger;

                           (B) seeks to impose material limitations on the
ability of the Company, or render the Company unable, to accept for payment, pay
for or purchase some or all of the Shares pursuant to the Offer and the Merger;

                           (C) otherwise is reasonably likely to have a Material
Adverse Effect (except if the Material Adverse Effect is caused by or related to
Bankers or its Affiliates); or there shall be any statute, rule, regulation,
judgment, order or injunction enacted, entered, enforced, promulgated or deemed
applicable to the Offer or the Merger, or any other action shall be taken by any
governmental entity, that is reasonably likely to result, directly or
indirectly, in any of the consequences referred to in clauses (A) and (B) of
paragraph (i) above; or

                  (ii) there shall have occurred:

                           (A) any general suspension of trading in, or
limitation on prices for, securities on the New York Stock Exchange or in the
Nasdaq National Market System, for a period in excess of seventy-two consecutive
trading hours; or


                                       A-1


                           (B) a declaration of a banking moratorium or any
suspension of payments in respect of banks generally in the United States
(whether or not mandatory); or

                           (C) a commencement of a war, or other international
or national calamity directly involving the United States;

                           (D) any limitation (whether or not mandatory) by any
United States or foreign governmental authority on the extension of credit by
banks or other financial institutions; or

                           (E) a change in general financial bank or capital
market conditions which materially or adversely affects the ability of financial
institutions in the United States to extend credit or syndicate loans; or

                  (iii) any Material Adverse Effect (except any Material Adverse
Effect caused directly or indirectly by Bankers) or any event, change, effect,
fact or circumstance that would reasonably be likely to result in a Material
Adverse Effect (except any Material Adverse Effect caused directly or indirectly
by Bankers); or

                  (iv) the Company Board of Directors or the Special Committee
shall have:

                           (A) withdrawn, modified or changed in a manner
materially adverse to Bankers or Acquisition Subsidiary its approval of the
Offer, this Agreement or the Merger;

                           (B) recommended the approval or acceptance of an
acquisition proposal from, or similar business combination with, a person or
entity other than Bankers, Acquisition Subsidiary or their Affiliates; or

                           (C) executed an agreement in principle or definitive
agreement relating to an Acquisition Proposal from, or similar business
combination with, a person or entity other than Bankers, Acquisition Subsidiary
or their Affiliates; or

                  (v) any of the representations and warranties of the Company
set forth in Section 1.02 and Article III this Agreement shall not be true and
correct in all material respects as of the date of this Agreement and as of the
expiration date of the Offer (except to the extent that any such representation
or representation speaks only as of a particular date); or

                  (vi) the Company shall have failed to perform in any material
respect any material obligation or to comply in any material respect with any


                                       A-2

material agreement or covenant of the Company to be performed or complied with
by it under this Agreement; or

                  (vii) all governmental consents necessary to the consummation
of the Offer or the Merger, whether federal, state or local shall not have been
obtained, other than consents the failure to obtain which would not have a
Material Adverse Effect and other than consents to the Merger related directly
or indirectly to Bankers or its Affiliates; or

                  (viii) this Agreement shall have been terminated in accordance
with its terms;

which in the judgment of Bankers, or the Company reasonably exercised, in any
such case, and regardless of the circumstances giving rise to such condition,
makes it inadvisable to proceed with the Offer and/or with the acceptance for
payment of or payment for Shares.

         Except for the Minimum Condition and the conditions in clause
(b)(ii)(A)-(E) of this Annex A, the foregoing conditions may only be waived by
written agreement of Bankers and the Company, provided, however, that if David
K. Meehan or Robert M. Menke have actual knowledge as of the date hereof that a
representation or warranty of the Company is not true and correct as of the date
of this Agreement or as of the expiration date of the Offer, then the agreement
of Bankers shall not be required for the waiver of the breach of such
representation or warranty by the Company. The conditions in clause (b)(ii)(A)-
(E) may be waived by the Company without the consent of Bankers. The Minimum
Condition may only be waived by written agreement of Bankers, the Company and
the Special Committee.


                                       A-3


                                     ANNEX B

                                 LOAN DOCUMENTS



             [Note: Filed separately as Exhibits 10.4 through 10.7
                     to this Quarterly Report on Form 10-Q]

EX-10.2

                                                                 Exhibit 10.2

                  INSURANCE ADMINISTRATION SERVICES AGREEMENT

         THIS INSURANCE ADMINISTRATION SERVICES AGREEMENT ("Agreement") is
entered into by and between INSURANCE MANAGEMENT SOLUTIONS, INC. ("Vendor"), a
corporation organized and existing under the laws of the State of Florida with
its principal place of business located at 360 Central Avenue, St. Petersburg,
Florida 33701, and FIRST INSURANCE COMPANY OF HAWAII, LTD ("Company"), an
insurer existing under the laws of the State of Hawaii with its principal place
of business located at 1100 Ward Avenue, Honolulu, HI 96814.

         WHEREAS, the Federal Emergency Management Agency ("FEMA") and the
Federal Insurance Administration ("FIA") administer the National Flood Insurance
Program ("NFIP") and the Company is an insurance company duly licensed to write
flood insurance in the state or states to which this Agreement pertains and is
approved by FIA to act as a Write Your Own Flood Carrier ("WYO Carrier") under
the Write Your Own Flood Insurance Program ("WYO Flood Program"), a program
offered under the NFIP; and

         WHEREAS, Vendor has been designated by FIA as a "qualified performer"
for the provision of services to WYO Carriers under the NFIP; and

         WHEREAS, Company wishes to engage the services of Vendor to administer
certain of the Company's obligations in the state(s) ("Applicable States") set
forth herein;

         WHEREAS, Vendor wishes to provide such services as set forth herein.

         NOW THEREFORE, IN CONSIDERATION OF the mutual covenants and agreements
hereinafter set forth, the parties hereto do covenant and agree as follows:

I.       AUTHORITY OF VENDOR.

         A.       Appointment - Company hereby grants Vendor the authority to
                  supervise and administer certain lines of Company's business
                  ("Insurance Program"), as specified in Schedule A, in the
                  states ("Applicable States") expressly set forth in Schedule
                  A. Schedule A is attached to and hereto made a part of this
                  Agreement. Vendor hereby accepts such appointment, and the
                  grant of authority, and agrees to carry out the resulting
                  duties and responsibilities to the best of its ability,
                  knowledge, skill, and judgment, and in accordance with the
                  highest reasonably attainable standards of quality generally
                  utilized in the insurance and data processing industries.

         B.       Authority - Company hereby grants Vendor the authority to act
                  for and on behalf of Company in matters required for Vendor to
                  properly supervise and conduct the handling of the aforesaid
                  WYO Flood program, including the authority to collect and
                  remit premiums, process applications and other forms, issue
                  policies, and process claims, all in a manner consistent with,
                  pursuant to and as authorized by the provisions of the
                  National Flood Insurance Act of 1968 (as amended), the
                  regulations of the NFIP, FIA, FEMA and the terms of this
                  Agreement.




II.      RESPONSIBILITIES OF VENDOR.

         A.       Policy Administration: Vendor shall administer Company's WYO
                  Flood Program policies ("WYO Policy", or the plural, "WYO
                  Policies") and in accordance therewith shall be responsible
                  for the following policy administration functions: compliance
                  with community eligibility/rating criteria; policyholder
                  eligibility determination; WYO Policy issuance, WYO Policy
                  endorsements; WYO Policy cancellations; WYP Policy
                  correspondence; payment of agents' commissions on Company's
                  behalf; and, the receipt, recording, control, timely deposit,
                  and disbursements of premium funds in connection with the
                  foregoing, all in accordance with the WYO Flood Program
                  Financial Control Plan ("Financial Control Plan")
                  requirements established by the FIA. Further, Vendor shall
                  reply to written and telephone inquiries from policyholders
                  and/or producers regarding any WYO Policy administered
                  pursuant to this Agreement.

         B.       Claim Service - Company shall have responsibility for the
                  administration and processing of WYO Policy claims ("Claim")
                  under this Agreement. Vendor shall provide the Systems
                  required for ???. Vendor will be responsible for check
                  disbursements and all required reporting to NFIP, FIA and
                  FEMA. Vendor will provide Catastrophe Claim Services that are
                  outlined in Schedule B of this Agreement.

         C.       Statistical Reporting - Vendor shall prepare and submit, to
                  FIA, monthly financial and statistical reports,
                  reconciliations, certifications, and statistical tapes on
                  Company's behalf, in accordance with WYO Flood Program
                  Accounting Procedures and the Transaction Record Reporting
                  and Processing Plan ("TRRP Plan"). Vendor shall submit copies
                  of all monthly reports to the Company.

         D.       Company Agents - Vendor shall provide to each Company Agent
                  appointed under this Agreement, a limited license to use
                  Vendor's FloodWriter(c)(tm) software program, and a current
                  flood zone determination for any WYO Policy application
                  submitted pursuant to this Agreement. Further, excluding
                  records required to be maintained by Company in accordance
                  with the FloodWriter(c)(tm) software license, Vendor shall
                  keep appropriate records, in conformity with Internal Revenue
                  Services regulations, for the purpose of preparing 1099
                  reports for Company Agent's commissions and Adjuster's fees
                  paid by Vendor on behalf of Company. The expense for the above
                  services has been incorporated in the Vendor's Monthly Service
                  Fee.

         E.       Time Standards - Vendor shall use it's best efforts to adhere
                  to certain time standards for performance, as may be outlined
                  and amended from time to time within the FEMA/FIA Financial
                  Assistance/Subsidy Arrangement ("Arrangement").

III.     PREMIUM COLLECTION AND ARRANGEMENT

         A.       Banking Arrangement - Vendor and Company shall establish
                  banking arrangements which comply with the Arrangement and
                  other WYO Flood Program requirements, and which will provide
                  for the establishment of a NFIP restricted account
                  ("Restricted Account") with company as custodian, and a FEMA
                  letter of credit ("Letter of Credit"), with additional
                  accounts as needed to facilitate operations, all in
                  conformity with FEMA/FIA guidelines. Company shall grant
                  specific Vendor employees checksigning authority on any
                  Restricted Account and the authority to initiate appropriate
                  drawdowns against Company's Letter of Credit, in order for
                  Vendor to act on Company's behalf in making


                                       2


                  disbursements for Company liabilities established by the
                  Arrangement, the WYO Flood Program, and this Agreement.
                  All such authorizations shall be in writing and may be
                  revoked, amended or modified at any time by Company upon
                  thirty (30) days advanced written notice to Vendor.

         B.       Premium Remittance - Vendor shall be liable to the FIA for any
                  premiums Vendor has received on WYO Flood program business
                  written under this Agreement. Vendor shall establish
                  procedures for a timely deposit and remittance of funds to the
                  U.S. Treasury via authorized automatic clearinghouse
                  mechanism. Gross premium collected by Vendor, for WYO Flood
                  program business written under this Agreement, shall be
                  remitted to the FIA by Vendor net of the established NFIP
                  Allowable Expenses. "Allowable Expenses" shall mean a WYO
                  Carrier's operating and administrative expenses.

         C.       Financial Data - Vendor shall maintain supporting
                  documentation for all bank accounts over which it has
                  authority. At least monthly, Vendor shall prepare financial
                  data, by state, reflecting all debits and credits with respect
                  to WYO Flood Program business written pursuant to this
                  Agreement, including agents' commissions and Vendor's
                  Servicing Fees paid, during the preceding quarter.

IV.      COMPANY ACCESS TO RECORDS

         Vendor agrees to permit Company or its duly appointed representatives,
         during the term of this Agreement, the right to visit, inspect,
         examine, copy, verify and audit, at Vendor's offices, any of the
         accounts, files, documents, books, reports and other records in
         possession or control of Vendor relating directly to the WYO Flood
         Program business covered by this Agreement. Such access shall be given
         during reasonable business hours and upon ten (10) days prior written
         notice to Vendor.

         Furthermore, at Company's expense, Vendor shall conduct a biennial
         audit of any and all WYO Flood Program business written by Company
         pursuant to this Agreement. To minimize the expense incurred by Company
         for such biennial audit, Vendor shall select an auditor, subject to
         Company's approval, and shall coordinate the biennial audit.

V.       EXPENSES AND FEES

         A.       Service Fee - Company shall pay Vendor, on a monthly basis,
                  a servicing fee ("Servicing Fee") as specified in the
                  Schedule B, which schedule is attached to and hereto made a
                  part of this Agreement.

         B.       Claims Administration Fee - If Vendor provides claims
                  administration services to Company, Company shall pay Vendor a
                  claims administration fee ("Claims Administration Fee") as
                  specified in the Schedule B.

         C.       Additional Service Expenses - In accordance with the
                  Arrangement, Company shall be liable for operating,
                  administrative and production expenses, including but not
                  limited to any State premium taxes, agents' commissions, or
                  any other expense of whatever nature incurred by the Company
                  in the performance of its obligations under the Arrangement.

         D.       Vendor Expenses - In consideration of the Servicing Fees and
                  Claims Administration Fees paid to Vendor, Vendor shall pay
                  the general expenses of processing the WYO Flood program
                  policies, including those of policy


                                       3


                  administration, cash management, claims processing and
                  financial and transactional reporting.

         E.       WYO Flood Program Reimbursements - Any WYO Flood program
                  Reimbursements made pursuant to the Arrangement, including,
                  but not limited to, those for the unallocated loss expenses,
                  shall be payable to Vendor upon receipt by Company.

         F.       Marketing Goals - Company shall maintain responsibility for
                  any risk, or shall be entitled to any reward, that may be
                  associated with achieving or failing to achieve any marketing
                  goal set by the FIA or FEMA.

VI.      ADDITIONAL SERVICES AND FEES

         A.       Agent or Company Training - Upon Company request, Vendor will
                  provide one training session per quarter, or four training
                  sessions per year, to company or Company's agents. Company
                  shall provide the training facility and pay Vendor reasonable
                  per diem and travel expenses incurred.

         B.       Marketing Material - Company may use Vendor's previously
                  developed marketing or promotional materials, which Vendor may
                  customize and produce for Company at company's expense.

         C.       Additional Fees and Service - Additional service not defined
                  in this Agreement may be provided as mutually agreed upon
                  between the Company and Vendor in writing.

VII.     CONFIDENTIALITY OF DATA AND INFORMATION.

         A.       Confidential and Proprietary Information - Vendor and Company
                  acknowledge that any and all information concerning the
                  other's business is confidential and proprietary information
                  ("Confidential Information") and neither party shall permit
                  the duplication, use, or disclosure of any such Confidential
                  Information to any person, other than its own employees,
                  agents or representatives who must have such information for
                  the performance of obligations hereunder, unless such
                  duplication, use, or disclosure is specifically authorized in
                  writing by the other party. Confidential information is not
                  meant to include any information which at the time of
                  disclosure is generally known to the public and/or the
                  insurance industry prior to the disclosure.

         B.       Trademarks, Service Marks, Trade Names - Neither party shall
                  use or duplicate the name(s), trademark(s), servicemark(s), or
                  trade name(s) (whether registered or not) of the other party
                  in public releases or advertising or in any other manner
                  unless such use or duplication is specifically authorized in
                  writing by the other party, except that Vendor may include
                  Company's name in a list of clients/customers without such
                  authorization.

         C.       Agreement Terms - Neither party shall disclose information as
                  to specific terms of this Agreement, in particular any details
                  about the work performed or the Service Fees or Claims
                  Administration Fees paid, without prior written consent of the
                  other party.

         D.       Company's Records - Vendor shall maintain system integrity and
                  data security necessary to protect Company's records and data
                  from loss and damage and to protect against unauthorized
                  disclosure of Company's Confidential Information as described
                  in Section VII(A) above.


                                       4


         E.       Public Disclosure - The disclosure restrictions provided in
                  this section shall be extinguished at the time and to the
                  extent that the Confidential Information becomes generally
                  available to the public domain without the fault of either
                  Vendor or Company.

VIII.    COMMENCEMENT AND TERMINATION.

         A.       Term of Agreement - This Agreement shall become effective on
                  the date that this document is executed by Company and by
                  Vendor and shall have a minimum term ("Initial Term") of
                  thirty six (36) full calendar months unless terminated earlier
                  pursuant to this section VIII (C) of this Agreement. At the
                  conclusion of the Initial Term ("Termination Date"), this
                  Agreement shall be renewed and extended for an additional
                  renewal term of thirty-six (36) months unless otherwise
                  terminated pursuant to this Section VIII (C).

         B.       Termination Without Cause - This Agreement may be terminated,
                  without cause, at any time after the Initial Term by either
                  party upon written notice of termination to the other, not
                  less than ninety (90) days prior to the Termination Date.

         C.       Termination for Cause - Any party may immediately terminate
                  this Agreement for cause upon written notice to the other
                  party in the event of:

                  1.       Bankruptcy, receivership, of either party, regardless
                           of whether any of these occur voluntarily or
                           involuntarily; or

                  2.       Failure by any party to fulfill a material obligation
                           under this Agreement, provided that such party has
                           been notified in writing of such failure and such
                           failure continues without cure for a period of ninety
                           (90) days after written notice thereof.

         D.       Accounting - Upon termination of this Agreement, Vendor shall
                  fully account to Company for all of its responsibilities and
                  activities pursuant to this Agreement.

IX.      LIABILITY.

         A.       Limit of Liability - In no event shall Vendor's liability for
                  breach of this Agreement or any of its provisions exceed the
                  Company's earnings under this agreement for the three months
                  immediately preceding the breach. Vendor shall not be liable
                  for any lost profits, business goodwill, or other
                  consequential, punitive, special or incidental damages
                  incurred by Company.

         B.       Vendor Indemnification - Vendor shall indemnify, defend and
                  hold harmless Company, its officers, and directors from any
                  liability, cost, loss, fine, penalty, claim, demand, damage or
                  expense, including attorney's fees, incurred as a direct
                  result of any act, error or omission by Vendor, or incurred as
                  a result of any material breach of Vendor's obligations under
                  this Agreement. Vendor's indemnification under this paragraph
                  shall be in accordance with the limitations set forth in this
                  Agreement.

         C.       Company Indemnification - Company shall indemnify, defend and
                  hold harmless Vendor, its officers, and directors from any
                  liability, cost, loss, fine, penalty, claim, demand, damage or
                  expense, including attorney's fees, incurred as a


                                       5

                  direct result of any act, error or omission by Company or
                  incurred as a result of any material breach of Company's
                  obligations under this Agreement. Company's indemnification
                  under this paragraph shall be in accordance with the
                  limitations set forth in this Agreement.

         D.       Notice of Claim - All parties agree to promptly give the other
                  notice upon being notified or becoming aware of an allegation
                  or claim which could give rise to a claim under this section.

X.       GENERAL AGREEMENTS

         A.       Applicable Law - This Agreement in all matters arising
                  thereunder shall be governed by and determined in accordance
                  with the laws of the State of Florida. Venue for any actions
                  arising hereunder shall be in a State court of competent
                  jurisdiction in Pinellas County, Florida. Notwithstanding the
                  foregoing, this section shall not apply to any matter that
                  relates specifically to and involves an insured party,
                  including but not limited to Claims filed by an insured.

         B.       Entire Agreement - This Agreement, and any exhibits, schedules
                  or addenda attached hereto, contain all of the prior oral
                  and/or previously written agreements, representations, and
                  arrangements between the parties hereto. There are no
                  representations or warranties other than those set forth
                  herein. No change or modification of this Agreement shall be
                  valid unless the same shall be in writing and signed by all of
                  the parties hereto. All schedules, addendum of any kind, or
                  attachments to this Agreement shall be made a part of this
                  Agreement and shall be subject to all terms and conditions of
                  this Agreement.

         C.       Attorney's Fees - If either party should bring a Court action
                  alleging breach of this Agreement or seeking to enforce,
                  rescind, renounce, declare void or terminate this Agreement or
                  any provisions thereof, the prevailing party shall be entitled
                  to recover all of its legal expenses, including reasonable
                  attorney's fees and costs (including legal expenses for any
                  appeals taken), and to have the same awarded as part of the
                  judgment in the proceeding in which such legal expenses and
                  attorney's fees were incurred.

         D.       Company Warranties - Company warrants that it and that it is
                  licensed to engage in the insurance business in all
                  jurisdictions in which it has duly authorized Vendor to issue
                  policies or other insurance coverage in the Company's name.
                  Further, Company warrants to Vendor that it will comply with
                  the laws of the state or states covered by this Agreement and
                  with the rules and regulations of all regulatory authorities
                  having jurisdiction over Company's activities, and shall,
                  whenever necessary, maintain at its own expense all required
                  licenses to transact business in such states.

         E.       Vendor Warranties - Vendor warrants to Company that it is
                  duly authorized and incorporated to transact the business of
                  servicing insurance companies. Further, Vendor warrants to
                  Company that it will comply with the laws of the state or
                  states covered by this Agreement and with the rules and
                  regulations of all regulatory authorities having jurisdiction
                  over Vendor's activities, and shall, whenever necessary,
                  maintain at its own expense all required licenses other than
                  agents licenses unless specifically noted in Schedule A of
                  this agreement, to transact business in such states.


                                       6




         F.       Invalidation - Should any part of this Agreement for any
                  reason be declared invalid, such decision shall not effect the
                  validity of any remaining portion, which remaining portion
                  shall remain in full force and effect as if the Agreement had
                  been executed with the invalid portion thereof eliminated. It
                  is, therefore, declared the intention of the parties hereto
                  that each of them will have executed the remaining portion of
                  this Agreement without including therein any such part, parts
                  or portion which may, for any reason, be hereafter declared
                  void.

         G.       Construction of Agreement - The parties acknowledge that each
                  party and its counsel have reviewed and revised this Agreement
                  and that the normal rule of construction to the effect that
                  any ambiguities are to be resolved against the drafting party
                  shall not be employed in the interpretation of this Agreement
                  or any amendments or exhibits hereto.

         H.       Miscellaneous - Words of a gender used in this Agreement shall
                  be held to include any other gender, the words in a singular
                  number held to include the plural, when the sentence so
                  requires. Section headings are intended for purposes of
                  description only and shall not be used for purposes of
                  interpretation of this Agreement.

         I.       Notices - Any and all notices, designations, consents, offers,
                  acceptances, or any other communication provided for herein
                  shall be given in writing by hand delivery, by overnight
                  carrier, by registered or certified mail or by facsimile
                  transmission and shall be addressed as follows:

                  As to Company:    First Insurance Company of Hawaii, LTD
                                    1100 Ward Avenue
                                    Honolulu, HI 96814
                                    (808) 545-3262
                  Attention:        Antonio Abad, Assistant Vice President


                  As to Vendor:     Insurance Management Solutions, Inc.
                                    360 Central Avenue
                                    St. Petersburg, FL 33701
                  Fax Number:       (813) 823-6518
                  Attention:        Kelly King, Senior Vice President

                  Notices sent by hand delivery shall be deemed effective on the
                  date of hand delivery. Notices sent by overnight carrier shall
                  be deemed effective on the next business day after being
                  placed into the hands of the overnight carrier. Notices sent
                  by registered or certified mail shall be deemed effective on
                  the third business day after being deposited into the post
                  office. Notices sent by facsimile transmission shall be deemed
                  to be effective on day when sent if sent prior to 4:30 p.m.
                  (the time being determined by the time zone of the recipient)
                  otherwise they shall be deemed effective on the next business
                  day.

            (The remainder of this page is intentionally left blank)


                                       7


IN WITNESS WHEREOF, the parties hereto by their respective duly authorized
representatives have executed this Agreement to be effective as of the 22ND day
of MARCH, 1999.



"Vendor":                                               "Company":
                                                     
INSURANCE MANAGEMENT SOLUTIONS, INC.                    FIRST INSURANCE COMPANY OF HAWAII, LTD.



By: /s/ Kelly R. King                                   By: /s/ Ernie L. Moore
   ----------------------------------------                -----------------------------------------

As its:  SR. V.P.                                       As its: SR. VICE PRESIDENT
       ------------------------------------                    -------------------------------------

Date: 3/17/99                                           Date: 3-22-99
     --------------------------------------                  ---------------------------------------



                                       8


                                   SCHEDULE A

                    APPLICABLE STATES AND INSURANCE PROGRAM

Company hereby authorizes Vendor to supervise and administer its Insurance
Program for the following line(s) of business in the following "Applicable
States":

LINES OF BUSINESS:

WYO Flood Insurance

APPLICABLE STATES:

Hawaii


                                       9

                                   SCHEDULE B

                                      FEES

POLICY ADMINISTRATION

Company shall pay Vendor a monthly Servicing Fee of 8% Direct Written Premium,
for all Administration services rendered by Vendor pursuant to this Agreement.

The Service Fee shall be retained from the Restricted Account as an Allowable
Expense payable to Vendor.


CLAIM ADMINISTRATION

Company shall pay Vendor the following Claim Administration Fees:

Claim System Services: Vendor shall retain .25% of Direct Earned Premium for
the Claim System utilization and maintenance, training, check disbursement and
claim reporting requirements as outlined in the WYO Arrangement.

Catastrophe Services: Vendor will provide Full Catastrophe Flood Claim
Services. Vendor shall retain the full 3.3% Administration Fee and Fee Schedule
for Catastrophe Services.

The Claim Administration Fees shall be retained from the Restricted Account as
an Allowable Expense payable to Vendor.


                                       10

          ADDENDUM TO THE INSURANCE ADMINISTRATION SERVICES AGREEMENT

THIS ADDENDUM TO THE INSURANCE ADMINISTRATION SERVICES AGREEMENT (hereinafter,
"Addendum") dated this ___ day of ______________, 1999, by and between
INSURANCE MANAGEMENT SOLUTIONS, INC. ("Vendor"), and FIRST INSURANCE COMPANY OF
HAWAII, LTD. ("Company"), hereby modifies and supplements that INSURANCE
ADMINISTRATION SERVICES AGREEMENT (hereinafter, "Agreement"), by and between
the Company and Vendor, effective on March 22, 1999, and shall be attached to
and form a part of the Agreement.

I.       Claim Service - Article II, Paragraph B of the Agreement is hereby
         deleted and replaced with the following:

         Claim Service - Vendor shall have responsibility for the
         administration and processing of WYO Policy claims ("Claim") under
         this Agreement. Vendor shall provide "Full Claim Service", which shall
         be defined as processing and administering a Claim from the Claim's
         inception until closing. The Claim shall be processed and administered
         in accordance with the following procedures:

         A.       Processing. Vendor shall provide Claims processing in
                  accordance with the Arrangement and the Financial Control
                  Plan. Vendor may also rely on information and direction
                  contained in the WYO Flood Program Claims Manual, the FEMA
                  Adjuster Manual, the Flood Insurance (Agent's) Manual, the
                  standard flood insurance policy, the WYO Operational
                  Overview, and/or other WYO Flood Program instructional
                  material.

         B.       Catastrophe Office. A catastrophe team may be engaged at the
                  discretion of the Vendor to provide Claims support. Vendor
                  shall coordinate activities and shall provide information to
                  the FIA or its designee whenever a flood insurance
                  catastrophe office is established.

II.      Schedule B - Schedule B of the Agreement is hereby modified as follows:

         Catastrophe Services: Vendor shall retain 3.3% of the net Claim after
         application of the deductible.

III.     General Agreement - All provisions within the Agreement, not
         inconsistent with this Addendum, shall remain in effect and are
         enforceable.

         IN WITNESS WHEREOF, the parties have executed this Agreement or caused
this Agreement to be duly executed by their corporate officers on the dates as
indicated hereafter.



COMPANY:                                                    VENDOR:
                                                         
FIRST INSURANCE COMPANY OF HAWAII, LTD.                     INSURANCE MANAGEMENT SOLUTIONS, INC.



By: /s/ Ernest H. Fukeda, Jr.                               By: /s/ C. Breakiron
   --------------------------------------                      ---------------------------------------

As its: VICE PRESIDENT                                      As its: CFO
       ----------------------------------                          -----------------------------------

Date: 1-28-2000                                             Date 1/30/00
     ------------------------------------                       --------------------------------------



            Addendum to Insurance Administration Services Agreement

This addendum effective July 26, 2002 is hereby attached to and made a part of
the Insurance Administration Services Agreement dated March 22, 1999 between
Insurance Management Solutions, Inc. and First Insurance Company of Hawaii, Ltd.

The Insurance Administration Services Agreement is amended as follows:

         Section VIII.     Commencement and Termination.

                           A. Term of Agreement-

The following shall be deleted:

         At the conclusion of the Initial Term ("Termination Date"), this
         Agreement shall be renewed and extended for an additional renewal term
         of thirty-six (36) months unless otherwise terminated pursuant to this
         Section VIII(C).

And replaced with:

         At the conclusion of the Initial Term ("Termination Date"), this
         Agreement shall be renewed and extended for an additional term of
         twelve (12) months unless otherwise terminated pursuant to this
         Section VIII(C).

In all other respects, the Insurance Administration Services Agreement dated
March 22, 1999 shall remain unchanged.

IN WITNESS WHEREOF, the parties have executed or caused this aforementioned
Agreement as amended by this addendum to be duly executed by its corporate
officers on the dates as indicated hereafter.

Company:                                    Vendor:

First Insurance Company of Hawaii, Ltd.     Insurance Management Solutions, Inc.


By: /s/ Antonio Abad                        By: /s/ D. M. Howard
  -------------------------------------       ----------------------------------

As its: VICE PRESIDENT                      As its: PRES/CEO
       --------------------------------            -----------------------------

Date:  JULY 26, 2002                        Date:  July 31, 2002
     ----------------------------------          -------------------------------

EX-10.3

                                                                    Exhibit 10.3

                               SECOND AMENDMENT TO
                   INSURANCE ADMINISTRATION SERVICES AGREEMENT

         This SECOND AMENDMENT ("Amendment"), effective as of August 12, 2002,
is made to that certain INSURANCE ADMINISTRATION SERVICES AGREEMENT (the
"Agreement") dated October 1, 2001 by and between INSURANCE MANAGEMENT
SOLUTIONS, INC. ("IMS"), a corporation organized and existing under the laws of
the State of Florida with its principal place of business located at 801 94th
Avenue North, St. Petersburg, Florida, and each of BANKERS INSURANCE COMPANY
("BIC'), BANKERS SECURITY INSURANCE COMPANY ("BSIC") and FIRST COMMUNITY
INSURANCE COMPANY ("FCIC"), herein collectively referred to as "Customer", all
having their principal place of business at 360 Central Avenue, St. Petersburg,
Florida 33701, which Agreement was amended by that certain First Amendment dated
July 1, 2002 (collectively with the Agreement is hereinafter referred to as the
"Agreement").

         WHEREAS, IMS is engaged by Customer to provide certain policy
administration services and claims administration services, respectively, as
provided in the Agreement; and

         WHEREAS, Customer and IMS mutually desire to add certain services
relating to Information Technology ("IT") Services to be provided by IMS to
Customer including the fees associated with such services, as the same are more
specifically set forth herein.

         NOW THEREFORE, IN CONSIDERATION OF the mutual covenants and agreements
hereinafter set forth, and for the considerations set forth in the Agreement,
the parties hereto hereby covenant and agree as follows:

1.       Insurance Administration Services. The "Insurance Administration
         Services" described in the Agreement will now include the services set
         forth on "EXHIBIT IV" attached hereto and made a part hereof, which
         EXHIBIT IV describes the "IMS COVERAGE OF CUSTOMER-OWNED IT SERVICES".
         Both EXHIBIT I and EXHIBIT II of the Agreement shall remain as is,
         without modification. Provided, however, the following sentence is
         hereby deleted in its entirety from Revised Exhibit I attached to the
         First Amendment, to wit:

                4) TELECOM SERVICES AND EQUIPMENT. IMS shall provide use of the
         telecom equipment in consideration of Customer administrating the
         system and providing technical support.

2.       Fees and Expenses. In addition to describing such services, EXHIBIT IV
         contains the "Fees" associated with and applicable to the IMS COVERAGE
         OF CUSTOMER-OWNED IT SERVICES. The "REVISED SCHEDULE B" attached to the
         First Amendment to Insurance Administration Service Agreement shall
         remain as is, without modification, but shall not be applicable to the
         services described on EXHIBIT IV.

3.       All Other Terms. Except as specifically modified by the terms of this
         Second Amendment, all other terms, definitions, conditions, exhibits
         and schedules contained in or otherwise attached to the Agreement shall
         remain in full force and effect.



                                       1


IN WITNESS WHEREOF, the parties hereto by their respective duly authorized
representatives have executed this Second Amendment as of the date and year
first set forth above.

- --------------------------------------------------------------------------------

"IMS"

INSURANCE MANAGEMENT SOLUTIONS, INC.

By:      s/s DM Howard
   ---------------------------------

As its: Pres/CEO
        ----------------------------

- --------------------------------------------------------------------------------

"CUSTOMER"

BANKERS INSURANCE COMPANY

By:      s/s David K. Meehan
   ---------------------------------

As its: President
        ----------------------------

BANKERS SECURITY INSURANCE COMPANY

By:      s/s David K. Meehan
   ---------------------------------

As its: President
        ----------------------------

FIRST COMMUNITY INSURANCE COMPANY

By:      s/s David K. Meehan
   ---------------------------------

As its: President
        ----------------------------

- --------------------------------------------------------------------------------







                                       2



                                   EXHIBIT IV

                 TO INSURANCE ADMINISTRATION SERVICES AGREEMENT

                   IMS COVERAGE OF CUSTOMER-OWNED IT SERVICES

SECTION I. IT OUTSOURCING SERVICES, UNLESS OTHERWISE DESCRIBED HEREIN, IMS SHALL
PROVIDE THE FOLLOWING SERVICES TO CUSTOMER BASED UPON THE SERVICES FEE DESCRIBED
FOR EACH.

- ------------------------------------------------------------------------
             SERVICES:                           SERVICES FEE
- ------------------------------------------------------------------------
         Desktop Support(1)             $37.00 per employee per month;
                                         monthly minimum of $9,250.00
- ------------------------------------------------------------------------
         Server Support(2)                     $7,841 per month
- ------------------------------------------------------------------------
         Telecom Support(3)             $31.00 per employee per month;
                                         monthly minimum of $7,750.00
- ------------------------------------------------------------------------
         Telecom Hosting(4)                    $2,000 per month
- ------------------------------------------------------------------------
  Application Software Support(5)             $43,490 per month
- ------------------------------------------------------------------------
      Statistical Reporting(6)                 $2,500 per month
- ------------------------------------------------------------------------

(1)      Desktop Support (on-site support to be provided from 8:00 AM to 6:00
         PM, Monday through Friday and on-call after regular business hours,
         including holidays):
         -        Initially covers Customer's 360 employees located in St.
                  Petersburg, Florida that are desktop users and require desktop
                  support
         -        This service fee may be adjusted each quarter based upon the
                  number of Banker's employees on current payroll at the
                  beginning of such quarter. Either party may request an
                  adjustment (that is, an increase in fees or decrease in fees),
                  based upon a change in the number of Customer's employees by
                  providing written notice to the other party at the beginning
                  of each quarter. Should either party fail to request an
                  adjustment for a particular quarter, the fee shall remain
                  as-is for the remainder of that quarter. Provided, request for
                  an adjustment may be made at the beginning of the next quarter
                  (the foregoing is called the "Employee Adjustment")

         -        IMS will provide:
                           -        Help Desk Services
                                    -        Intranet enabled support ticket
                                             request capability
                                    -        Support telephone line
                                    -        Problem resolution at the desktop
         -        Customer will provide:
                           -        Desktop Hardware for each associate covered
                           -        Desktop Software for each associate covered

(2)      Server Support
         -        Covers 26 (plus or minus 3) Customer-owned servers, including:
                           -        BIGDC01
                           -        BIGDC02
                           -        CADSRV01
                           -        CITRIXSRV01
                           -        DB2DEV
                           -        DB2DEV02
                           -        DEPTSRV02
                           -        DUNSRV01
                           -        EPSSRV01
                           -        FAPSRV01
                           -        INTSRV01
                           -        ISASRV01
                           -        ISASRV03
                           -        RPTSRV01
                           -        SQLSRV01
                           -        STRUSTSRV


                                       3


                                   EXHIBIT IV
           TO INSURANCE ADMINISTRATION SERVICES AGREEMENT - CONTINUED

                  -        SVCSRV01
                  -        SVCDEV01
                  -        TSMSRV01
                  -        WEBSRV01
                  -        INTDEV01
                  -        INTDEV02
                  -        INTDEV03
                  -        WEBDEV02
                  -        IMGSRV01
                  -        IBM AS/400 720 Model

         -        Customer will provide for Customer-owned servers:
                  -        Server Hardware
                  -        Server Software
                  -        Server Space Rental
                  -        Electrical Power
                  -        Backbone and other Necessary connectivity
                  -        Access to secured computer room; provided IMS shall
                           be responsible for all maintenance and security
                           associated with the servers located in such room

         -        IMS will provide (to be provided 24-hours each day, seven (7)
                  days per week, including holidays):
                  -        Help Desk Support
                  -        Network Access
                  -        Server Availability
                  -        Storage/Backup/Archive/Retrieval

(3)      Telecom Support (on-site support to be provided from 8:00 AM to 5:00
         PM, Monday through Friday and on-call after regular business hours,
         including holidays) for all current system configuration (All
         additional changes and enhancements based upon time and materials):
         -        Initially covers Customer's 400 employees located in St.
                  Petersburg, Florida that are telecom users and require support
         -        The fees for this service is subject to the "Employee
                  Adjustment" described above
         -        Telecom Personnel to support the existing Customer telecom
                  infrastructure
         -        Customer will provide
                  -        Telecom Interconnectivity for Customer telecom
                           infrastructure
                  -        Telecom software to support Customer telecom
                           infrastructure

(4)      Telecom Hosting (on-site support to be provided from 8:00 AM to 5:00
         PM, Monday through Friday and on-call after regular business hours,
         including holidays) for all current system configuration (All
         additional changes and enhancements based upon time and materials):
         -        IMS will provide Northern Telecom compliant existing handsets
                  for 400 Customer associates
         -        IMS will provide Northern Telecom PBX Hardware
         -        IMS will provide PBX Availability
         -        IMS will provide PBX Software (current system configuration)
         -        Customer will provide Hosting Space Rental
         -        Access to secured computer room; provided IMS shall be
                  responsible for all maintenance and security associated with
                  the servers located in such room

(5)      Application Software Support (on-site support to be provided from 8:00
         AM to 5:00 PM, Monday through Friday and on-call after regular business
         hours, including holidays) for all current system configuration (All
         additional changes and enhancements based upon time and materials):
         -        Companion Flood Software Support
         -        BOP Software Support
         -        Excess Flood Software Support
         -        Contingency Commission Software Support



                                       4


                                   EXHIBIT IV
           TO INSURANCE ADMINISTRATION SERVICES AGREEMENT - CONTINUED

         -        Customer Internet Site Support
         -        Customer Intranet Site Support
         -        Customer Month-End Software Support
         -        Human Resources ADP Software Support
         -        Vector Software Support
         -        CPP Software Support
         -        Commercial Auto Software Support
         -        Vanguard Book-Transfer Software Support
         -        Various Current Manual Line Software Support
         -        Various Current Other Products, that are or were in "run-off"
                  phase attached hereto as Exhibit IV - A (the "Run-off Lines of
                  Business")

(6)      Statistical Reporting for current system configurations. All additional
         changes and enhancements based upon time and materials.
         IMS shall provide:
         a.       Commercial Lines Statistical Call Support:
                      i.   Quarterly TX ISO - QTR Miscellaneous Commercial
                           Experience
                     ii.   NAII Commercial Fire & Allied Lines/FR BIC-FCIC
                    iii.   Annual NAII General Liability/GLA BIC-FCIC-BSIC
                     iv.   NAII Professional Liability/MPA BIC
                      v.   NAII Business owners/BO BIC-BSIC
                     vi.   NAII Farm owners/FM
                    vii.   NAII Burglary/BU BIC-FCIC
                   viii.   NAII Fidelity & Surety/F&S BIC-BSIC
                     ix.   NAII Glass/GS BIC-FCIC
                      x.   NAII Inland Marine/IM
                     xi.   Annual NAII Auto/AU Excluding NC BIC-FCIC
                    xii.   NAII Personal Lines/DP BIC-BSIC-FCIC
                   xiii.   VOLEX
                    xiv.   NC VOLEX
                     xv.   NAII NC Quarterly Auto
                    xvi.   TICO Market Report
                   xvii.   SCHWHUA Voluntary Credit Report
                  xviii.   FWUA Voluntary Credit Report
                    xix.   Alabama Disaster Response Plan
                     xx.   NY Insurance Disaster Coalition
                    xxi.   GA Cancel/Non-Renewal Forms GID-44 GID-45
                   xxii.   TX ISO - Quarterly Liability Experience
                  xxiii.   NAII SC AIPEX
                   xxiv.   CA PP Liability Auto Report SAL/AR
                    xxv.   Home State - TX Theft Report
                   xxvi.   FHCF Data Call, and

         b.       Homeowner and Auto Statistical Call Support:
                      i.   CA PP Auto Physical Damage Experience SAP
                     ii.   Exposure Reporting - Monthly Call
                    iii.   FHCF Data Call
                     iv.   Home State - Quarterly Experience Report
                      v.   Home State - Commercial Auto Call
                     vi.   Home State - Policy Count
                    vii.   Home State - Quarterly Market Report
                   viii.   Home State - TX Theft Assessment Report
                     ix.   NAII FL AIP
                      x.   NAII FL AIPEX
                     xi.   NAII SC AIP
                    xii.   QUASR
                   xiii.   SC AIPSO
                    xiv.   TX ISO- F&S



                                       5


(7)      General Conditions:
         a.       Customer shall provide necessary personnel space for IMS
                  employees servicing Customer pursuant to this Agreement, and
         b.       Customer shall provide adequate parking spaces for IMS
                  employees servicing Customer pursuant to this Agreement, based
                  upon Customer's parking policies and procedures, as revised
                  from to time.














                                       6



                                 EXHIBIT IV - A

                           "RUN-OFF LINES OF BUSINESS"

Auto Service
Border Trucking
Commercial Auto
Cycle Warranty
Day Care
Employers Liability
Fidelity
Firearms
Inland Marine
Marine Industries Contingent P & I
Marine Omnibus
Real Estate Appraisers E & O
Restaurant-Standard Lines
Surety Bonds
Towing
Trucking
Senior Yacht
Special Restaurant
Discontinued Lines
Contract Surety
Lensurance
Occupational Accident Policy
Ocean Marine
Workers Compensation
Personal Auto GA (CA, OR, WA)
Personal Auto (FL & SC)
Business Auto (BUTI)
Personal Auto (BUTI)
Homeowners (Heartland)
Dwelling Fire (Heartland)
Non-Standard Auto (Heartland)
Preferred Auto (Heartland)
All Prior Products previously serviced in "run-off"













                                       7

EX-10.4

                                                                   Exhibit 10.4

                         CREDIT AND SECURITY AGREEMENT

THIS CREDIT AND SECURITY AGREEMENT (herein, "Agreement") is made effective this
15 day of August, 2002 between INSURANCE MANAGEMENT SOLUTIONS GROUP, INC., a
Florida corporation (herein, "Lender") and BANKERS INSURANCE GROUP, INC., a
Florida corporation (herein, "BIG") and BANKERS UNDERWRITERS, INC.,   a Florida
corporation (herein, "BUI") (BIG and BUI herein, collectively "Borrower")
(herein Lender and Borrower collectively, "Parties" or individually "Party").

                                   RECITALS:

WHEREAS, Lender is a corporation duly organized under the laws of the State of
Florida; and

WHEREAS, Borrower is a corporation duly organized under the laws of the State
of Florida; and

WHEREAS, in order to provide Borrower with funds, Borrower wishes to borrow the
aggregate sum of up to Seven Million and No/100 dollars ($7,000,000.00) (the
"Loan") from Lender, which will be secured by the Collateral (as defined
below); and

WHEREAS, Lender wishes to make the Loan to Borrower; and

          NOW, THEREFORE, IN CONSIDERATION of Lender's agreement to make the
Loan to Borrower, all in accordance with the terms and conditions of this
Agreement, as well as for other good and valuable consideration, the Parties
hereto do covenant and agree as follows:

SECTION 1. RECITALS.

     The statements contained in the recitals of fact set forth above (the
     "Recitals") are true and correct, and the Recitals by this reference are
     made a part of this Agreement.

SECTION 2. EXHIBITS.

     The exhibits attached to this Agreement are by this reference made a part
of this Agreement.

SECTION 3. DEFINITIONS.

     For the purpose of this Agreement, the following terms shall have the
following meanings:

     a)   "Affiliate" shall mean any corporation, partnership, association,
          trust or Person which or who directly or indirectly controls or is
          controlled by, or is under common control with the Borrower.


     b)   "Borrower" shall mean both Bankers Insurance Group, Inc., a Florida
          corporation and Bankers Underwriters, Inc., a Florida corporation.

     c)   "Collateral" shall refer to the "Flood Book" (as defined below) being
          assigned by BUI to Lender pursuant to the Collateral Assignment of
          Flood Book and this Agreement.

     d)   "Corporate Principal" shall mean any shareholder, director, or officer
          of Borrower.

     e)   "Event Of Default" shall mean any of the events or conditions
          described in Section 11 below.


                                    1 of 10

     f) "Flood Book" shall have the definition assigned to such term in the
        Collateral Assignment of Flood Book.

     g) "Indebtedness" shall mean all principal, interest and other charges
        arising under the Loan and the Revolving Line of Credit Master
        Promissory Note ("Note") being executed by Borrower in favor of Lender
        on or about the date hereof.

     h) "Loan" shall mean the line of credit established pursuant to Section 4
        hereof.

     i) "Loan Documents" shall mean each of the following documents all dated of
        even date herewith to establish the Loan - Note, Collateral Assignment
        of Flood Book, UCC-1 Financing Statement, Further Assurance and
        Compliance Agreement and this Agreement.

     j) "Obligation" or "Obligations" shall mean any and all Indebtedness,
        liabilities and obligations of Borrower whatsoever under the Loan
        Documents.

     k) "Person" shall mean and include any individual, partnership,
        corporation, trust, unincorporated organization or a government or any
        department or agency thereof.

     l) "Subsidiary" shall mean any corporation of which a majority, in vote or
        in value, of every class of stock, at the time as of which any
        determination is being made, is owned by the Borrower either directly
        or through Subsidiaries.


SECTION 4.  LOAN.


     a) Amount. Upon the execution of this Agreement and in compliance with its
        terms and conditions, Lender agrees to make a revolving loan to
        Borrower up to a maximum principal amount equal to Seven Million and
        No/100 dollars ($7,000,000.00).

     b) Purpose. Funds received under the Note shall be used by Borrower
        exclusively: (i) to payoff a $5,000,000.00 loan and other indebtedness
        outstanding from BIG to AMS Staff Leasing ("AMS"), by virtue of a loan
        made by AMS to BIG on or about June 10, 2002, and all other
        indebtedness associated with that Loan; and (ii) for other working
        capital needs of Borrower as determined from time to time by Borrower.

     c) Grant of Security Interest. BUI does hereby grant to Lender a first
        priority security interest in and to the Flood Book as security for the
        repayment of all sums advanced on the Loan and for the performance by
        Borrower of all covenants and agreements under the Loan Documents in
        accordance with their terms and conditions.


SECTION 5.  TERM OF AGREEMENT.

     a) This Agreement shall be effective upon the execution hereof, and shall
        continue in full force and effect until the Loan is paid in full.


                                    2 of 10



SECTION 6. CONDITIONS PRECEDENT.

    Prior to the first advance by Lender to Borrower pursuant to this Agreement
    and as a condition precedent to any of Lender's other obligations under this
    Agreement, Borrower shall execute and deliver to Lender or shall cause to be
    executed and delivered to Lender each of the following:

  a)  Promissory Note. The Note which shall include a Waiver of Jury Trial
      provision;

  b)  The Loan Documents;

  c)  Perfection. Such financing statement(s), security agreements, and other
      documents and instruments as Lender may reasonably require from time to
      time to perfect any and all security interests granted by BUI to Lender
      pursuant to this Agreement or pursuant to any other security agreement(s)
      executed by Borrower to induce Lender to make the Loan herein described;

  d)  Resolutions. The good and sufficient Resolution of the Board of Directors
      of the Borrower authorizing Borrower to enter into the transaction
      contemplated by this Agreement.

    Prior to the first advance and at the time of each advance by Lender to
    Borrower pursuant to this Agreement and as a condition precedent to any of
    Lender's other Obligations under this Agreement, the following shall be
    true:

  e)  No Default. There shall be no Event of Default hereunder, nor any event of
      default existing under any of the Loan Documents.

  f)  No Change. There shall have been no material adverse change in the
      Borrower or the Collateral.

  g)  No Litigation. There shall be no pending litigation or administrative
      action or known threat thereof challenging the Loan transaction or the
      Agreement and Plan of Merger between Lender, BIG and others (the "Merger
      Agreement").

  h)  True and Correct. All representations and warranties of Borrower in and
      all of the Loan Documents shall be true and correct.

  i)  Other Documents. Lender shall have received from Borrower all other
      documents reasonably requested by Lender.


SECTION 7. AFFIRMATIVE COVENANTS.

    Borrower hereby covenants with Lender that for so long as any Obligations
    remain outstanding Borrower shall:

  a)  Corporate Existence. Do or cause to be done all things necessary to keep
      in full force and effect its corporate existence and all rights,
      franchises, licenses, authorizations, permits and qualifications to carry
      on business in all jurisdictions where such qualifications may be
      necessary;

  b)  Compliance with Law. Remain in compliance with all applicable laws of the
      jurisdictions within which Borrower conducts its business.

  c)  Payment of Taxes. Pay all federal, state and local taxes as the same
      become due.

  d)  Financial Statements. Deliver to Lender, the following:

        1) Unaudited Financials -- Monthly. As soon as practicable, and in any
           event within thirty (30) days after the end of each calendar month,
           furnish to Lender a monthly unaudited consolidated financial
           statement of BIG, including balance sheets and income statements, for
           the calendar month just ended, and for the calendar year to date,
           certified by a duly authorized officer of

- --------------------------------------------------------------------------------


                                    3 of 10

             BIG;

          2) Unaudited Financials - Annual.  As soon as practicable, and in any
             event within one hundred twenty (120) days after the end of each
             fiscal year, furnish to Lender, the unaudited consolidated
             financial statement for BIG, including balance sheets and income
             statements, prepared in accordance with generally accepted
             accounting principles and practices applied on a basis consistently
             maintained throughout the period involved and certified by an
             authorized officer of BIG; and

          3) Data.  Promptly, but in all events within ten (10) days of Lender's
             request, such financial statements, reports, certificates, lists of
             customers (showing names, addresses and amounts owing) and other
             data concerning accounts, contracts, collections, inventory and
             other matters as Lender may from time to time request.

     e)   Notice.  Give prompt written notice to Lender upon becoming aware of
          the occurrence of any Event of Default or event which, by passage of
          time or the giving of notice or both would constitute an Event of
          Default;

     f)   Free Collateral.  Keep Collateral free from all liens, encumbrances
          and security interests and pay and discharge when due all taxes,
          levies and other charges upon it and upon the goods evidenced by any
          documents constituting Collateral and defend it against all claims of
          any kind;

     g)   Access.  Provide access to accounting and business records of Borrower
          which will include, but not be limited to, access and substantive
          dialogue with Borrower's accountants, attorneys, bank or other
          financial institution and any other party or parties with which the
          Borrower has had or may have any dealings. Said dialogue may encompass
          the affairs, finances and accounts of Borrower including but not
          limited to any matter or aspect pertaining to any and all business
          transactions that have taken place or that may be contemplated at some
          future date. Borrower shall hold harmless, indemnify, release and
          authorize any and all such parties that may care to express an opinion
          regarding the business of the Borrower and the transactions engaged
          therein;

     h)   Financial Condition.  Notify Lender immediately, but in any event
          within five (5) days after obtaining knowledge of any fact or facts
          which might materially and adversely affect the assets, business
          operations, properties, income or condition (financial or otherwise)
          of the Borrower or the Obligations or authority of Borrower to perform
          its Obligations under any Loan Document;

     i)   Notify of Action or Suit.  Notify Lender immediately, but in any event
          within five (5) days after obtaining knowledge that Borrower is a
          party, or may be threatened to be made a party, to any threatened,
          pending or completed action, suit or proceeding, whether civil,
          criminal, administrative or investigative;

     j)   Pay Debts - Indemnity.  Pay when due (or within applicable grace
          periods) all Indebtedness due third Persons, except when the amount
          thereof is being contested in good faith by appropriate proceedings
          and with adequate reserves therefore set aside on the books of
          Borrower for the payment of such indebtedness. If Borrower shall
          default in the payment of any principal (or installment thereof) of,
          or interest on, any such Indebtedness, Lender shall have the right, in
          its sole discretion, to pay such interest or principal on behalf of
          Borrower; provided, however, Borrower shall indemnify Lender in full
          for any such amount;

     k)   New Location.  Notify Lender thirty (30) days in advance of any change
          in the jurisdiction of its organization, the location of any of its
          businesses or the establishment of any new, or the discontinuance of
          any existing, place of business; and

     l)   Books of Account - Inspections.  Maintain books of account in
          accordance with general accounting practices, and for purposes of
          determining Borrower's compliance with this Agreement. If no


                                    4 of 10

      Event of Default exists or is continuing, Lender shall have the right, at
      Lender's expense, to inspect any of the corporate books and financial
      records at such reasonable times as Lender may request. If any Event of
      Default exists, Lender may, at the expense of the Borrower, inspect the
      corporate books and financial records at all such reasonable times and as
      often as may be requested by the Lender.

SECTION 8. NEGATIVE COVENANTS.

      Borrower hereby covenants with Lender that for so long as any Obligations
      remain outstanding and unless Lender notifies Borrower in writing it
      dispenses with any one or more of the following requirements, Borrower
      will not:

   a) Character of Business. Engage in any business substantially apart from the
      services currently being provided by Borrower;

   b) Mergers, Consolidations, Sales. Consolidate with or merge into any other
      Person or permit any other Person other than a Subsidiary to consolidate
      with, or merge into, the Borrower, or to sell, transfer or otherwise
      dispose of all, or substantially all, of its assets to any other Person;

   c) Business Practices. Materially alter or change the principal business in
      which Borrower is engaged or the manner in which Borrower conducts its
      business affairs; and

   d) Untrue Statements. Furnish Lender any certificate or other document that
      will contain any untrue statement of material fact or that will omit to
      state a material fact necessary to make it not misleading in the light of
      circumstances under which it was furnished.

SECTION 9. REPRESENTATIONS AND WARRANTIES.

      Borrower represents and warrants to Lender that:

   a) Absence of Defaults. All agreements to which Borrower and Lender are
      parties are valid and binding agreements enforceable against Borrower in
      accordance with their terms, and no event has occurred and is continuing
      which constitutes an Event of Default by Borrower or a default by Borrower
      under any such agreements;

   b) Ownership. BUI owns all of the Flood Book;

   c) Proceeds. Proceeds under this Loan will be used exclusively for the
      purposes and in the amounts set forth herein;

   d) Correct Financials. Any financial statements heretofore delivered to
      Lender are true and correct in all respects, have been prepared in
      accordance with generally accepted accounting principles and fairly
      represent the financial conditions of the Borrower as of the respective
      dates thereof. No material adverse change has occurred in the financial
      condition of the Borrower reflected in such financial statements since the
      respective dates thereof and no additional borrowings have been made by
      Borrower since the date thereof other than the borrowing contemplated
      hereby;

   e) No Breach or Violation. The consummation of the transactions contemplated
      hereby or the performance by Borrower of any Obligation will not result in
      any breach of or constitute a default under any mortgage, deed of trust,
      lien, bank loan, or credit agreement, corporate charter, by-law, law,
      regulation, ordinance, order, judgment, decree or other instrument to
      which Borrower is a party, or by which it is bound or affected;

   f) Corporate Existence-Good Standing.

       1) Borrower is a corporation duly organized, validly existing, and in
          good standing under the laws of the State of Florida;


                                    5 of 10

          2) Borrower has all lawful corporate power to own its properties and
             to engage in the business it now conducts, and Borrower is duly
             qualified and in good standing as a foreign corporation in the
             jurisdictions wherein the nature of the business transacted by it
             or property owned by it make such qualification necessary;

          3) Borrower has not changed its name, been the surviving corporation
             in a merger, acquired any business, or changed its principal
             executive office since 1994; and

     g) Representations and Warranties Survive. All of the representations and
        warranties set forth in Section 9. hereof encaptioned, "Representations
        and Warranties" shall survive the execution and delivery of this
        Agreement and the other Loan Documents until all Obligations are
        satisfied in full and all outstanding amounts due under the Loan are
        paid in full.

     h) Authority/Validity. Borrower had the requisite corporate power and
        authority to execute and deliver this Agreement and the other Loan
        Documents. The execution, delivery and performance of this Agreement and
        the other Loan Documents have been duly authorized by all necessary
        corporate action on the part of the Borrower.

     i) Litigation. There is no litigation proceeding pending, or to the
        knowledge of Borrower, threatened against Borrower except for threats of
        litigation against BIG by AMS, which will be fully resolved by BIG by
        means of the payment by BIG, from the proceeds hereof, of the loan from
        AMS to BIG as described in Section 4(b)(i) hereof, and Borrower knows of
        no circumstances as of the date of this Agreement that could materially
        and adversely affect the Borrower and/or the Collateral.

SECTION 10. FINANCING STATEMENTS.

     a) At Lender's discretion, Borrower will join with Lender in executing such
        financing statements (including amendments thereto and continuation
        statements thereof) in form satisfactory to Lender; pay or reimburse
        Lender for all costs and taxes of filing and recording the same in such
        public offices as Lender may designate; and take such other steps as
        Lender may direct, including the noticing of Lender's lien on the
        Collateral and on any certificates of title therefore all to perfect
        Lender's interest in the Collateral; and

     b) To the extent lawful, Borrower hereby appoints Lender with full power of
        substitution and revocation, as its Attorney-in-Fact (without requiring
        Lender to act as such) to execute any financing statement in the name of
        Borrower, and to perform all other acts that Lender deem appropriate to
        perfect and continue its security interest in, and to preserve, the
        Collateral.

SECTION 11. EVENTS OF DEFAULT.
     The following occurrences shall constitute Events Of Default hereunder:

     a) Non-Payment. Borrower fails to pay when and as required to be paid
        herein, any principal or interest amount within 5 days after the same
        becomes due;

     b) Breach of Warranty. Any warranty, representation, or statement made or
        furnished to Lender by or on behalf of Borrower proves to have been
        false in any material respect on or as of the date when made or
        furnished or deemed made or furnished;

     c) Breach of Covenant. Any affirmative covenant or negative covenant is
        breached, violated or not complied with if such affirmative covenant or
        negative covenant continues to be breached, violated


                                    6 of 10

   or not complied with after Lender has given notice thereof to Borrower and a
   15 day opportunity to cure;

d) Dissolution/Bankruptcy. Dissolution, termination of existence, insolvency
   (failure to pay its debts as they mature or the failure to maintain the fair
   market value of its assets in an amount greater than its liabilities on a
   consolidated basis for purposes herein, whichever shall first occur), a
   business failure, appointment of a receiver, assignment for the benefit of
   creditors or the commencement of any proceedings under any bankruptcy or
   insolvency law by or against Borrower or any guarantor or the making by
   either Borrower or any guarantor of any offer or settlement, exchange or
   composition to their respective unsecured creditors generally;

e) Attach Liens. The issuance or filing against Borrower of a tax lien or the
   issuance or filing of any attachment, injunction, execution or judgment which
   is not removed within thirty (30) days after issuance of filing;

f) Waste. Lender shall, upon reasonable basis, at any time deem itself insecure
   or unsafe because of diminution, removal, or waste of Collateral;

g) Third Party Debt. Borrower shall fail to pay any Indebtedness due any third
   persons and such failure shall continue beyond any applicable grace period,
   or Borrower shall suffer to exist any other event of default under any
   agreement binding the Borrower;

h) Judgment. Borrower shall suffer final judgments for payment of any sums due
   to third parties and shall not discharge the same within a period of thirty
   (30) days (unless, pending further proceedings, execution has not been
   commenced, or if commenced has been effectively stayed) or a judgment
   creditor of Borrower shall obtain possession of any of the Collateral by any
   means, including, without limitation, levy, distraint, replevin, or self
   help; and

i) Impairment of Security. Any condition or situation, which, in the sole
   determination of the Lender, upon reasonable basis, constitutes a danger of
   impairment of the security of the Loan, and such condition or situation is
   not remedied within ten (10) business day's after receipt of written notice
   to the Borrower to remedy such condition or situation.

j) Default under Other Documents. A default shall occur under the Merger
   Agreement, other Loan Documents or other Material Agreements (as that term is
   defined herein) between Borrower and Lender, and which are not cured within
   the applicable grace or curative period set forth therein. For purposes of
   this Agreement, the term "Material Agreement" shall mean any agreement the
   default of which could result in a claim for damages of at least $100,000.00.

SECTION 12. DEFAULT REMEDIES.

a) Upon any Event Of Default:

1) Lender shall retain the right to terminate making any further advances of the
   Loan at any time thereafter, without notice, and until all Obligations are
   satisfied in full, such termination shall not affect the duties, covenants
   and liabilities of Borrower hereunder and all the terms, conditions and
   provisions hereof relating thereto shall continue to be fully operative until
   all transactions entered into and Obligations have been fully satisfied;

2) All or any portion of Obligations due or to become due whether under this
   Agreement or otherwise, shall, at the option of Lender, without notice,
   demand, presentment or dishonor, all

                                    7 of 10

               of which Borrower hereby waives, become at once due and payable,
               and Lender shall thereupon have all the rights and remedies of a
               secured party under the Uniform Commercial Code as adopted by the
               State of Florida;

          3)   Lender may also, with or without proceeding with sale or
               foreclosure or demanding payment of a debt owning by Borrower to
               Lender, without notice, terminate further performance under this
               Agreement and may declare all outstanding amounts under the Loan
               Documents due and payable and proceed against the Collateral
               whether or not in the possession of Lender; and

          4)   To the extent either Borrower makes a payment or payments to
               Lender which payment or payments or any part thereof are
               subsequently invalidated, declared to be fraudulent or
               preferential, set aside or required to be repaid to a trustee,
               receiver or any other party under any bankruptcy act, state or
               federal law, common law or equitable cause, then, to the extent
               of such payment or repayment, the Obligation(s) or part thereof
               intended to be satisfied shall be revived and continued in full
               force and effect as if such payment had not been made.

     b)   Any failure or delay of Lender to exercise or enforce any rights,
          liens, powers or remedies hereunder or under any of the aforesaid
          agreements or other documents or security or Collateral shall not
          operate as a waiver of such liens, rights, powers and remedies, but
          all such liens, rights, powers and remedies shall continue in full
          force and effect until all loans and advances and all Obligations
          owing or to become owing from Borrower to Lender shall have been fully
          satisfied and all liens, rights, powers and remedies herein provided
          are cumulative and none is exclusive.

     c)   Lender may exercise any right or remedy it has under the Note which
          rights and remedies thereunder are not limited hereby.

SECTION 13.    MISCELLANEOUS

     a)   Further Assurances. From time to time, Borrower will execute and
          deliver to Lender such additional documents and will provide such
          additional information as Lender may reasonably require to carry out
          the terms of this Agreement and be informed of Borrower's status and
          affairs.

     b)   Payment. The Borrower agrees that as long as the Loan Documents are in
          full force and effect, it will make all payments on the Note, when
          due, by check duly mailed or delivered to Lender at the address
          indicated in the Notice section of this Agreement, or at such other
          place as Lender may designate to the Borrower in writing.

     c)   Successors and Assigns.  This Agreement shall bind and inure to the
          benefit of the respective successors and assigns of the parties
          hereto.

     d)   Waiver by Lender.   Lender shall have the right at all times to
          enforce the provisions of this Agreement and any other Loan Document
          executed pursuant hereto in accordance with the terms hereof and
          thereof, notwithstanding any conduct or custom on the part of Lender
          in refraining from so doing at any time. The failure of Lender at any
          time to enforce its rights under such provisions, in accordance with
          the same shall not be construed as having created a custom in any way
          or manner contrary to specific provisions of this Agreement or as
          having in any way or manner modified or waived the same. All rights
          and remedies of Lender are cumulative and concurrent and the exercise
          of one right or remedy shall not be deemed a waiver or release of any
          other right or remedy.

                                    8 of 10

     e)  Costs/Expenses. Borrower will pay all reasonable costs and expenses
         related to the transactions contemplated hereby  including but not
         limited to, out-of-pocket expenses for payment of recording and filing
         fees, legal fees and expenses of counsel appointed by the Lender,
         together with any interest and penalties for the late payment thereof,
         all of which amounts shall be payable at the time of the execution of
         this Agreement or upon demand in the event they are hereafter incurred.

     f)  Attorney's Fees. If either of the Parties hereto should bring a Court
         action alleging breach of this Agreement or seeking to enforce,
         rescind, renounce, declare void or terminate this Agreement or any
         provisions thereof, the prevailing party shall be entitled to recover
         all of its legal expenses, including reasonable attorney's fees and
         costs (including legal expenses for any bankruptcy proceedings or
         appeals taken), and to have the same awarded as part of the judgment
         in the proceeding in which such legal expenses and attorney's fees were
         incurred.

     g)  Captions. The Agreement contains captions as to contents of the
         particular paragraphs. The captions set forth herein are inserted only
         for convenience and are in no way to be construed as part of this
         Agreement or as a limitation of the scope of the particular paragraph
         in which they are referred.

     h)  Construction of Agreement. Words of a gender used in this Agreement
         shall be held to include any other gender, the words in a singular
         number held to include the plural, when the sentence so requires.

     i)  Counterparts. This Agreement may be executed in several counterparts,
         each of which so executed shall be deemed to be an original, and said
         counterparts shall together constitute and be one and the same
         instrument.

     j)  Entire Agreement. This Agreement contains all of the oral and/or
         previously written agreements, representations, and arrangements
         between the Parties hereto with respect to the subject matter of this
         Agreement, and all right which the respective Parties may have had
         under any written agreements and/or oral agreements with respect to the
         subject matter of this Agreement are hereby canceled and terminated,
         and all Parties agree that there are no representations or warranties
         other than those set forth herein.

     k)  Invalidation. Should any part of this Agreement for any reason be
         declared invalid, such decision shall not effect the validity of any
         remaining portion, which remaining portion shall remain in full force
         and effect as if this Agreement had been executed with the invalid
         portion thereof eliminated. It is, therefore, declared the intention of
         the Parties hereto that each of them will have executed the remaining
         portion of this Agreement without including therein any such part,
         parts or portion which may, for any reason, be hereafter declared void.

     l)  Modification. No change or modification of this Agreement shall be
         valid unless the same shall be in writing and signed by each of the
         Parties hereto.

     m)  Notices. Any and all notices, designations, consents, offers,
         acceptances, or any other communication provided for herein shall be
         given in writing by hand delivery, by overnight carrier, by registered
         or certified mail or by facsimile transmission and shall be addressed
         as follows:

             As to Borrower:          Bankers Insurance Group, Inc.
                                      360 Central Avenue, 17th Floor
                                      St. Petersburg, Florida 33701


                                    9 of 10

                                      Att: David B. Snyder
                                      Telephone: (727) 823-4000
                                      Telefax: (727) 823-6518

                                      and

                                      Bankers Underwriters, Inc.
                                      360 Central Avenue, 17th Floor
                                      St. Petersburg, Florida 33701
                                      Att: David B. Snyder
                                      Telephone: (727) 823-4000
                                      Telefax: (727)  823-6518

              As to Lender:           Insurance Management Solutions Group, Inc.
                                      360 Central Avenue, 16th Floor
                                      St. Petersburg, Florida 33701
                                      Att: David Howard, President
                                      Tel#: (727) 803-2040
                                      Fax: (727) 803-4093


     Notices sent by hand delivery shall be deemed effective on the date of hand
     delivery. Notices being sent by overnight carrier shall be deemed effective
     on the next business day after being placed into the hands of the overnight
     carrier. Notices sent by registered or certified mail shall be deemed
     effective on the third business day after being deposited into the post
     office. Notices sent by facsimile transmission shall be deemed to be
     effective on day when sent if sent prior to 5:00 p.m. (the time being
     determined by the time zone of the recipient) otherwise they shall be
     deemed effective on the next business day.

 n)  Representation Acknowledged.  The Parties acknowledge that each Party and
     its counsel have reviewed and revised this Agreement and that the normal
     rules of construction to the effect that any ambiguities are to be resolved
     against the drafting party shall not be employed in the interpretation of
     this Agreement or any amendments or exhibits hereto.

 o)  Applicable Law/Venue.  This Agreement shall be construed in accordance with
     and governed by the laws of the State of Florida, without regard to choice
     of law provisions. Further, the venue for any action brought to enforce any
     of the provisions hereof shall be in a state court of competent
     jurisdiction in Pinellas County, Florida and any action commenced in any
     other forum may be removed to a state court of competent jurisdiction in
     Pinellas County, Florida.

IN WITNESS WHEREOF, the Parties hereto have set their hands and seals, the day
and year first above written.

"BIG"
BANKERS INSURANCE GROUP, INC.,
a Florida corporation

By:     /s/ David B. Snyder
    ---------------------------
        Its Vice President,
        Assistant Secretary
         (CORPORATE SEAL)


                                    10 of 10


"BUI"
BANKERS UNDERWRITERS, INC.
a Florida Corporation

By:          /s/ David B. Snyder
    ---------------------------------------
              Its Vice President
             Assistant Secretary
               (CORPORATE SEAL)

"Lender"
INSURANCE MANAGEMENT SOLUTIONS GROUP, INC.,
a Florida corporation

By:            /s/ D. M. Howard
    ---------------------------------------
               Its President/CEO
               (CORPORATE SEAL)


                                    10 of 10

EX-10.5

                                                                   Exhibit 10.5


                REVOLVING LINE OF CREDIT MASTER PROMISSORY NOTE

$7,000,000.00                                                    August 15, 2002

     FOR VALUE RECEIVED, the undersigned, BANKERS INSURANCE GROUP, INC. a
Florida corporation (herein, "BIG") and BANKERS UNDERWRITERS, INC., a Florida
corporation (herein, "BUI") (BIG and BUI herein, collectively, "Debtor") jointly
and severally promise to pay to the order of INSURANCE MANAGEMENT SOLUTIONS
GROUP, INC., a Florida corporation, together with any other holder hereof
(herein, "Holder"), the principal sum of Seven Million and No/100 dollars
($7,000,000.00), together with interest thereon from the date hereon at a rate
equal to ten and 75/100 percent (10.75%) per anum, both principal and interest
being payable at Holder's place of business, 360 Central Avenue, St. Petersburg,
Florida 33701, or at such other places as Holder may designate from time to
time, in the following manner:

       Commencing on the first day of September 2002, all accrued and unpaid
       interest shall be due and payable, which shall also be paid on the first
       day of each calendar month thereafter (herein, "Payment Date"). All
       unpaid principal and interest shall be due and payable in full on the
       earlier of: (i) July 31st, 2003; or (ii) the date exactly ninety (90)
       days (or the next business day thereafter) following receipt by Debtor
       of written notice from Holder demanding repayment in full of this Note
       (a "Demand"), which Demand can only be made by Holder at any time
       following the occurrence of a Demand Event (as that term is defined
       below).

For purposes of this Note:

(a)  the term "Demand Event" shall mean:

     (i)   the expiration of an Offer (as that term is defined in the Merger
     Agreement) without any Shares (as that term is defined in the Merger
     Agreement) owned by Public Shareholders (as that term is defined in the
     Merger Agreement) being purchased pursuant to the Offer;

     (ii)  if the Holder shall not have then purchased Shares owned by the
     Public Shareholders pursuant to an Offer, the later of: (A) December 31,
     2002 or (B) such later date on which the Offer is terminated by Holder if
     the Offer is extended beyond December 31, 2002 by Holder;

     (iii) the date of any breach of the Merger Agreement by Debtor or its
     Affiliates;

     (iv)  the date of the termination or expiration of the Merger Agreement.

(b)  the term "Merger Agreement" shall mean that certain Agreement and Plan of
Merger by and Among BIG, Bankers Insurance Company ("BIC"), Bankers Security
Insurance Company ("BSIC"), Bankers Management Corporation and the Holder of
even date herewith.

Events of Default. The above notwithstanding, all principal and accrued but
unpaid interest shall become immediately due and payable by Debtor in any of
the following events:



     (i)       An uncured default by Debtor under this Note or the Credit and
Security Agreement of even date herewith (the "Credit Agreement");

     (ii)      An uncured default by Debtor under that certain Collateral
Assignment of Flood Book of even date herewith (the "Collateral Assignment"); or

     (iii)     An uncured default by BIG, BIC or BSIC under the Merger
Agreement.

Credit and Security Agreement.  Unless the context shall otherwise require,
capitalized terms not defined herein shall have the meanings assigned thereto in
the Credit Agreement.

Master Note.  This Note is a master note, and it is contemplated that any
amounts evidenced hereby will be advanced from time to time to the Debtor by
Holder in installments, as requested from time to time by the Debtor to the
Holder.

Advances.  It is further contemplated that any amounts advanced under this Note
may be prepaid from time to time by the Debtor. Debtor may receive advances
hereunder at any time, up to a maximum aggregate amount outstanding at any one
time equal to the principal amount of this Note, provided that: (i) Debtor is
not in default under any provision of this Note, the Credit Agreement, or any
other documents executed in connection with this Note or the Credit Agreement,
or any other note or other loan documents now or hereafter executed in
connection with any other obligation of Debtor to Holder; (ii) Debtor is not in
default with respect to its obligations under that certain Collateral
Assignment; and (iii) neither Debtor, BIC, nor BSIC is in default with respect
to their obligations under the Merger Agreement. By reason of such prepayments
hereon there may be times when no indebtedness is owing hereunder, and
notwithstanding any such occurrence, this Note shall remain valid and shall be
in full force and effect as to each subsequent principal advance made hereunder.
Each principal advance and each payment made pursuant to this Note shall be
reflected by notations made by Holder on the grid attached hereto as Schedule
"A", and Holder is hereby authorized to record on such grid all such principal
advances and payments. The aggregate unpaid amounts reflected by the notations
made by Holder on the attached grid shall be deemed rebuttably presumptive
evidence of the principal amount remaining outstanding and unpaid on this Note.
No failure of Holder so to record any advance or payment shall limit or
otherwise affect the obligation of the Debtor hereunder with respect to any
advance, and no payment of principal by the Debtor shall be affected by the
failure of Holder so to record the same.

Advance Obligations.  All advances to be made hereunder shall be made at the
option of Debtor, by providing written notice to Holder of the amount of a
proposed advance. This Note shall be valid and enforceable as to the aggregate
amount advanced at any time hereunder, whether or not the full face amount
hereof is advanced.

Application of Payments.  Each payment on the indebtedness evidenced hereby will
first reduce charges related to this Note owed by the Debtor that are neither
principal nor interest. The remainder of each such payment will be applied first
to the interest then accrued on said principal sum remaining unpaid, and then to
the reduction of such unpaid principal. Principal and interest shall be payable
in lawful money of the United States of America.

- --------------------------------------------------------------------------------


                                     2 of 7


Prepayment. The Debtor hereof shall not incur any penalty upon the prepayment
of all or any part of the indebtedness evidenced hereby.

Interest Calculation. Interest shall be calculated on all amounts advanced
based on the actual number of days said amounts are outstanding. Interest shall
be computed on the basis of a year of actual number of days per year [i.e.
three-hundred-sixty-five (365) days] and charged for the actual number of days
in the payment period.

Maximum Rate. Debtor shall have no obligation to pay interest or payments in the
nature of interest in excess of the maximum rate of interest allowed to be
contracted for by law, as changed from time to time, applicable to this Note
(herein, "Maximum Rate"). Any interest in excess of the Maximum Rate paid by
Debtor (herein, "Excess Sum") shall be credited as a payment of principal, or,
if Debtor so requests in writing, returned to Debtor, or, if the indebtedness
and other obligations evidenced by this Note have been paid in full, returned to
Debtor together with interest at the same rate as was paid by Debtor during such
period. Any Excess Sum credited to principal shall be credited as of the date
paid to Holder. Holder may, without such action constituting a breach of any
obligations to Debtor, seek judicial determination of the applicable rate of
interest, and its obligation to pay or credit any proposed Excess Sum to Debtor.

Collateral. The obligations under this Note and the Collateral Assignment are
secured by and subject to the terms and conditions of the Credit Agreement and
various other loan documents of even date herewith executed by and between
Debtor and Holder, respectively.

Past Due. Time is of the essence hereunder. If any payment hereby required is
overdue for more than five (5) days, the Holder of this Note may, at its
option, and without notice, declare the entire balance of principal then
remaining unpaid to be immediately due and payable, and any failure to exercise
said option shall not constitute a waiver of the right to exercise the same at
any other time. Further, upon an Event of Default, Holder of this Note may, at
its option, and without notice, adjust the interest due on the aggregate
principal amount remaining due and unpaid, together with accrued interest,
upward, to the rate of eighteen (18.0%) per centum per annum, or the Maximum
Rate of interest permitted by law, whichever rate shall be the lesser, which
rate of interest, as adjusted upward, shall be paid on all sums due hereunder
until the said sums have been paid in full, regardless of any payments made by
the maker hereof, and accepted by the Holder, after said option has been
exercised. Upon default in making any payment hereby required, Debtor promises
to pay all costs and expenses, including reasonable attorney's fees (including
the cost of any appeals), incurred in collecting this Note by legal proceedings
or through an attorney.

Remedies. The remedies of Holder herein and in the Credit and Security
Agreement shall be cumulative and concurrent, and may be pursued singularly,
successively, or together, at the sole discretion of Holder, and may be
exercised as often as occasion therefor shall arise. No action or omission of
Holder, including specifically any failure to exercise or forbearance in the
exercise of any remedy, shall be deemed to be a waiver or release of the same,
such waiver or release to be effected only through a written document executed
by Holder and then only to the extent specifically recited therein. A waiver or
release with reference to any one event shall not be construed as continuing or
as constituting a course of dealing, nor shall it be construed as a bar to, or
as a waiver or release of, any subsequent remedy as to a subsequent event.

                                     3 of 7

Set-Off. In addition to all liens upon, and rights of set-off against, any
monies, securities, or other property of any of the Debtor given to Holder by
law, Holder shall have a lien upon and a right of set-off against all monies,
securities and other property of any of the Debtor now or hereafter in the
possession of, or on deposit with, Holder, whether held in a general or special
account or deposit, for safekeeping, in trust or otherwise, and every such lien
and right of set-off as may be exercised without demand upon or notice to any
Debtor, and the Holder shall have no liability with respect to any of Debtor's
checks or other items which may be returned or other funds transfers which may
not be made due to insufficient funds thereafter.

Exercise/Modification. Neither any failure nor any delay on the part of Holder
in exercising any right, power, or privilege under this Note shall operate as a
waiver thereof, nor shall a single or partial exercise thereof preclude any
other or further exercise or the exercise of any other right, power, or
privilege. No modification, amendment, or waiver of any provisions of this Note
shall be effective unless in writing and signed by a duly authorized officer of
Holder, and then the same shall be effective only in the specific instance and
for the purpose for which given. No notice to, or demand on, any Debtor in any
case shall entitle any Debtor to any other or further notice or demand in the
same, similar, or other circumstances.

Severability. Any provision of this Note which is prohibited or unenforceable in
any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such prohibition or unenforceability without invalidating the remaining
provisions hereof or affecting the validity or enforceability of such provision
in any other jurisdiction.

Waiver. Debtor and any other person liable for the payment hereof respectively,
hereby expressly waive any valuation and appraisal, presentment, demand for
payment, notice of dishonor, protest, notice of nonpayment or protest, all other
forms of notice whatsoever, except as set forth herein, and diligence in
collection.

No Waiver. Acceptance of payments marked "payment in full" or "in satisfaction"
or words to similar effect shall not affect the duty of Debtor to pay all
obligations due hereunder, and shall not affect the right of Holder to pursue
all remedies available to it hereunder or under any other agreement between the
Debtor hereof and the Holder, including but not limited to that certain Credit
and Security Agreement of even date herewith.

Jury Trial. DEBTOR AND ANY OTHER PERSON LIABLE FOR PAYMENT HEREOF, BY EXECUTING
THIS NOTE OR ANY OTHER DOCUMENT CREATING SUCH LIABILITY, WAIVE THEIR RIGHTS TO A
TRIAL BY JURY IN ANY ACTION, WHETHER ARISING IN CONTRACT OR TORT, BY STATUTE OR
OTHERWISE, IN ANY WAY RELATED TO THIS NOTE. THIS PROVISION IS A MATERIAL
INDUCEMENT FOR HOLDER'S EXTENDING CREDIT TO DEBTOR AND NO WAIVER OR LIMITATION
OF HOLDER'S RIGHTS UNDER THIS PARAGRAPH SHALL BE EFFECTIVE UNLESS IN WRITING AND
MANUALLY SIGNED ON HOLDER'S BEHALF.

Jury Trial Consideration. Debtor acknowledge that the above paragraph has been
expressly bargained for by Holder as part of the loan evidenced hereby and that,
but for Debtor's agreement and the agreement of any other person liable for
payment hereof thereto, Holder would not have extended the loan for the term and
with the interest rate provided herein.

                                     4 of 7

Binding. The provisions of this Notes shall be binding upon the heirs,
successors, and assigns of Debtor, except that Debtor may not assign or
transfer its obligation hereunder without the written consent of Holder, and
shall inure to the benefit of Holder, its successors, and assigns.

Governing Law. This Note is to be governed by and construed under the laws of,
the State of Florida, without regard to choice of law provisions as amended,
except as modified by the laws and regulations of the United States of America.

Venue. Debtor hereby consents and submits to the jurisdiction of the courts of
the State of Florida, and, notwithstanding his, her, their, or its place of
residence or organization or the place of execution of this Note, any
litigation relating hereto, whether arising in contract or tort, by statute or
otherwise, shall be brought in (and, if brought elsewhere, may be transferred
to) a State court of competent jurisdiction in Pinellas County, Florida.

Paragraph Headings; Gender and Number. The headings inserted at the beginning
of each paragraph are for convenience of reference only and shall not limit or
otherwise affect or be used in the construction of any of the terms or
provisions hereof. The plural shall include the singular and the singular, the
plural, wherever the context so admits. The masculine shall include the
feminine and the neuter; the feminine, the masculine and the neuter; and the
neuter, the masculine and the feminine.

Documentary Stamp. This instrument was made, executed and delivered outside the
State of Florida, and no Florida Documentary Stamp Tax is due hereon in
accordance with F.A.C. 12B-4.053(33).

Notices. Any and all notices, designations, consents, offers, acceptances, or
any other communication provided for herein shall be given in writing by hand
delivery, by overnight carrier, by registered or certified mail or by facsimile
transmission and shall be addressed as follows:

          As to Borrower:          Bankers Insurance Group, Inc.
                                   360 Central Avenue, 17th Floor
                                   St. Petersburg, Florida 33701
                                   Att: David B. Snyder
                                   Telephone: (727) 823-4000
                                   Telefax: (727) 823-6518

                                   and

                                   Bankers Underwriters, Inc.
                                   360 Central Avenue, 17th Floor
                                   St. Petersburg, Florida 33701
                                   Att: David B. Snyder
                                   Telephone: (727) 823-4000
                                   Telefax: (727) 823-6518

          As to Lender:            Insurance Management Solutions Group, Inc.
                                   360 Central Avenue, 16th Floor
                                   St. Petersburg, Florida 33701
                                   Att: David Howard, President
                                   Tel#: (727) 803-2040
                                   Fax: (727) 803-4093


                                     5 of 7

     IN WITNESS WHEREOF, Debtor has caused this Note to be signed, sealed and
delivered in its name on the day and year first above written.


                                        DEBTOR:


                                        BANKERS INSURANCE GROUP, INC.
                                        a Florida corporation


                                        By: /s/ David B. Snyder
                                            -----------------------------
                                                  Its Vice President &
                                                      Assistant Secretary
                                                  (CORPORATE SEAL)


                                        and


                                        BANKERS UNDERWRITERS, INC.
                                        a Florida corporation


                                        By: /s/ David B. Snyder
                                            -----------------------------
                                                  Its Vice President &
                                                      Assistant Secretary
                                                  (CORPORATE SEAL)


                                     6 of 7

                                  SCHEDULE "A"
                             MASTER PROMISSORY NOTE

                            Debtor: Bankers Insurance Group, Inc. and
                                    Bankers Underwriters, Inc.

                            Holder: Insurance Management Solutions Group, Inc.

                      Project Name: Revolving Line of Credit

                   Original Amount: $7,000,000.00

                             As of: 8/15/02



                                                                           AMOUNT                                     NET
        MONTH                                AMOUNT                  OF PRINCIPAL          OUTSTANDING          AVAILABLE
       ENDING                           OF ADVANCES                     REPAYMENT              BALANCE             AMOUNT
- --------------------------------------------------------------------------------------------------------------------------
                                                                                             
Original Amount                                                                        $7,000,000.00      $7,000,000.00
                                   $0.00                            $0.00              $7,000,000.00              $0.00
                                   $0.00                            $0.00              $7,000,000.00              $0.00
                                   $0.00                            $0.00              $7,000,000.00              $0.00
                                   $0.00                            $0.00              $7,000,000.00              $0.00
                                   $0.00                            $0.00              $7,000,000.00              $0.00
                                   $0.00                            $0.00              $7,000,000.00              $0.00
                                   $0.00                            $0.00              $7,000,000.00              $0.00
                                   $0.00                            $0.00              $7,000,000.00              $0.00
                                   $0.00                            $0.00              $7,000,000.00              $0.00
                                   $0.00                            $0.00              $7,000,000.00              $0.00
                                   $0.00                            $0.00              $7,000,000.00              $0.00
                                   $0.00                            $0.00              $7,000,000.00              $0.00
                                   $0.00                            $0.00              $7,000,000.00              $0.00










                                     7 of 7

EX-10.6

                                                                   Exhibit 10.6

                      COLLATERAL ASSIGNMENT OF FLOOD BOOK

THIS COLLATERAL ASSIGNMENT OF FLOOD BOOK (herein, "Assignment") is made
effective this 15 day of August, 2002 by BANKERS UNDERWRITERS, INC., A FLORIDA
CORPORATION (herein, "Pledgor"), in favor of INSURANCE MANAGEMENT SOLUTIONS
GROUP, INC., A FLORIDA CORPORATION (herein, "Lender").

                                   RECITALS:

WHEREAS, Lender has its principal place of business located in St. Petersburg,
Florida, and has established a revolving line of credit (collectively, with the
Note and Loan Documents, as defined herein, the "Credit Line") in favor of
Bankers Insurance Group, Inc., a Florida corporation (herein, "BIG") and
Pledgor (BIG and Pledgor herein, collectively, "Borrower"), in the amount of
seven million and no/100 dollar ($7,000,000.00), as evidenced by Borrower's
Revolving Line of Credit Master Promissory Note (herein, "Note") of even date
herewith and in like principal amount; and

WHEREAS, Pledgor, Bankers Insurance Company, a Florida corporation (herein,
"BIC"), and First Community Insurance Company, a Florida corporation (herein,
"FCIC") are each wholly-owned subsidiaries of BIG; and

WHEREAS, in connection with the establishment of the Credit Line, Borrower has
executed and delivered various applicable documents, all dated of even date
herewith (collectively together with this Assignment, the "Loan Documents")
including, but not limited to, the Note, Credit and Security Agreement, UCC-1
Financing Statement, and Further Assurances Agreement; and

WHEREAS, Pledgor, as a Florida general insurance agent serving both BIC and
FCIC, is the owner of a significant flood book of business (inclusive of all
agency agreements pertaining thereto herein, "Flood Book") consisting of in
excess of 350,000 flood insurance policies on properties located in various
states of the United States, which Flood Book is more particularly described on
Exhibit "A" attached hereto; and

WHEREAS, as a condition precedent to establishing the Credit Line, Lender has
required the execution of this Assignment;

NOW, THEREFORE, in consideration of the aforesaid Credit Line, as well as for
other good and valuable consideration, Pledgor hereby assigns the Flood Book to
Lender as collateral security for the repayment of all sums advanced on the
Credit Line and for the performance by Borrower of all covenants and agreements
under the Loan Documents, in accordance with the following terms and conditions:

     SECTION 1.  RECITALS.

          The statements contained in the recitals of fact set forth above
          (herein, "Recitals") are true and correct, and the Recitals by this
          reference are made a part of this Assignment.

     SECTION 2.  EXHIBITS.

          The exhibits attached to this Assignment are by this reference made a
          part of this Assignment.



                                     1 of 7


SECTION 3. TERM OF ASSIGNMENT.

     a) This Assignment shall be effective upon the date set forth hereinabove.

     b) This Assignment shall continue in full force and effect until Borrower
        shall have satisfied in full all of its obligations to Lender under the
        Note and other Loan Documents.


SECTION 4. POWER OF ATTORNEY.

     a) Appointment.

          1) Until such time as the Credit Line has been paid in full or upon
             consent by Lender otherwise, and except as provided below, Pledgor
             irrevocably nominates, constitutes and appoints Lender its true and
             lawful attorney in fact, with full power of substitution and
             revocation for it, in its name, place and stead and either in the
             name of Lender or in the name of Pledgor to assign any agency
             agreements between Pledgor and agents responsible for the
             production of federal flood insurance policies as well as any other
             instruments, agreements, or certificates necessary or appropriate
             to give full force an effect to such assignment which assignment
             may be to Lender, to BIC, to FCIC, or to such other party as Lender
             may select, but Lender shall not be under any duty to exercise any
             such authority or power or in any way be responsible for the
             collection of any sums owing under the Flood Book (herein, "Power
             of Attorney").

          2) All rights, powers, and authority of said attorney-in-fact to
             exercise any and all rights and powers herein granted shall
             commence and be in full force and effect as of the date of this
             Assignment and such rights, powers, and authority shall remain in
             full force and effect thereafter until the termination of this
             Assignment.

     b) Limitation. Notwithstanding the foregoing or anything contained in this
        Assignment to the contrary, Lender shall not exercise its rights under
        this Power of Attorney or under this Agreement until an Event of Default
        (as defined below) occurs hereunder.

     c) Power. The Power of Attorney set forth herein is a power coupled with an
        interest.


SECTION 5. AFFIRMATIVE COVENANTS
     Pledgor hereby covenants with Lender that:

               (i) for so long as any amount remains outstanding under the
                   Credit Line; and

               (ii) unless Lender notifies Pledgor in writing it dispenses with
                    any one (1) or more of the requirements contained in the
                    Loan Documents,

     Pledgor shall keep the Flood Book free from any and all liens,
     encumbrances, and security interests, and shall pay and discharge when due
     all taxes, levies, and other charges upon them and defend them against all
     claims of any person.


SECTION 6. REPRESENTATIONS AND WARRANTIES.

     a) Pledgor hereby represents and warrants to Lender that:

          1) it is the lawful owner and holder of the entire interest in the
             Flood Book described above;

          2) it has good right to sell, transfer and assign the same as
             aforesaid;


                                     2 of 7





  3)  there are no actions, suits, or proceedings pending or, to the best of
      Pledgor's knowledge and belief, threatened against or affecting it whether
      civil, criminal, administrative, or investigative, and it is not in
      default with respect to any judgment, decision, order, writ, injunction,
      decree, or demand of any court or governmental authority;

  4)  the consummation of the transactions hereby contemplated in performance of
      this Assignment or of any of the Loan Documents will not result in any
      breach of, or constitute a default under any mortgage, deed of trust,
      lien, bank loan or credit agreement, corporate charter or by-law, or other
      instrument to which Pledgor is a party, or by which it is bound or
      affected;

  5)  it is a corporation duly organized, validly existing and in good standing
      under the laws of the State of Florida;

  6)  it has the lawful power to own its properties and to engage in the
      business it conducts;

  7)  it is duly qualified and in good standing as a foreign corporation in the
      jurisdictions wherein the nature of the business transacted by it or
      property owned by it make such qualification necessary;

  8)  the execution of this Assignment and the consummation of the transactions
      contemplated herein, and the performance of this Assignment and the Loan
      Documents, will not result in a breach or violation of any law,
      regulation, ordinance, order, judgment or decree applicable to Pledgor or
      any affiliate of Pledgor;

  9)  as of the date hereof, and subject to the ordinary course of Pledgor's
      business, Pledgor has no knowledge of circumstances or events that will
      cause or is likely to cause any material adverse decline in the number of
      flood insurance policies which constitute the Flood Book, or any material
      adverse decline in the value of the Flood Book;

 10)  no affiliate of BIG owns or conducts any flood book of business, except
      for a nominal portion of flood book business written by Bankers Security
      Insurance Company and First Community Insurance Company; and

 11)  by means of this Assignment, Pledgor had granted Lender a first priority
      security interest in the Pledgor's entire interest in the Flood Book.

 b) All of the representations and warranties set forth in this Section 6 shall
    survive until all sums due under the Credit Line are satisfied in full.

SECTION 7. EVENTS OF DEFAULT

 a) The term "Event of Default" shall mean:

    1) Any breach by Pledgor of any of the terms of this Assignment; or

    2) The breach or the occurrence of any event of default by Borrower, or any
       affiliate of Borrower, under any of the Loan Documents.

SECTION 8. MISCELLANEOUS

 a) Further Assurances. From time to time, Pledgor will execute and deliver to
    Lender such additional documents and will provide such additional
    information as Lender may reasonably require to carry out the terms of this
    Assignment and be informed of Pledgor's status and affairs.



                                     3 of 7






 b) Payment. The Pledgor agrees that as long as the Note is in full force and
    effect, it will make all payments, when due, by check duly mailed or
    delivered to Lender at the address indicated in the Notice section of this
    Assignment, or at such other place as Lender may designate to the Pledgor in
    writing, notwithstanding any contrary provisions herein or in Note with
    respect to the place of payment.

 c) Survival of Representations and Warranties. All representations and
    warranties contained herein or made in writing by the Pledgor in connection
    herewith shall survive the execution and delivery of this Assignment and of
    the Note.

 d) Successors and Assigns. Pledgor may not assign its rights or obligations
    hereunder without the prior written consent of Lender, except that Pledgor
    may assign all or a portion of its rights and obligations hereunder to BIG,
    but only in conjunction with an assignment to BIG of a corresponding portion
    of Pledgor's interest in the Flood Book in such a manner that Lender shall
    maintain its first priority security interest in the entirety of the Flood
    Book whether then owned by BUI or BIG (provided, however, that BUI shall
    first serve notice of its intent to make such an assignment to BIG and shall
    not effect such assignment until Lender shall have completed such acts as
    Lender shall believe reasonably necessary to maintain its first priority
    security interest in the entirety of the Flood Book). All covenants and
    agreements in this Assignment contained by or on behalf of the parties
    hereto shall bind and inure to the benefit of the respective successors and
    assigns of the parties hereto whether so expressed or not.

 e) Waiver by Lender. Lender shall have the right at all times to enforce the
    provisions of this Assignment and any other Loan Documents executed pursuant
    hereto in strict accordance with the terms hereof and thereof,
    notwithstanding any conduct or custom on the part of Lender in refraining
    from so doing at any time or times. The failure of Lender at any time or
    times to enforce its rights under such provisions, strictly in accordance
    with the same, shall not be construed as having created a custom in any way
    or manner contrary to specific provisions of this Assignment or as having in
    any way or manner modified or waived the same. All rights and remedies of
    Lender are cumulative and concurrent and the exercise of one right or remedy
    shall not be deemed a waiver or release of any other right or remedy.

 f) Inspect Records. Lender (or any person or persons designated by it) shall,
    in its sole discretion, have the right to call at any place of business of
    Pledgor at any reasonable time, and without hindrance or delay, inspect,
    audit, check and make extracts from Pledgor's books, records, journals,
    orders, receipts and any correspondence and other data relating to
    Collateral, to Pledgor's business or any other transactions between the
    Parties hereto.

 g) Costs/Expenses. All reasonable costs and expenses of the Credit Line shall
    be paid by Pledgor, including but not limited to, out-of-pocket expenses for
    payment of recording and filing fees, legal fees and expenses of counsel
    appointed by the Lender, together with any interest and penalties for the
    late payment thereof, all of which amounts shall be payable at the time of
    the execution of this Assignment or upon demand in the event they are
    hereafter incurred.

 h) Attorney's Fees. If either of the parties hereto should bring a Court action
    alleging breach of this Assignment or seeking to enforce, rescind, renounce,
    declare void or terminate this Assignment or any provisions thereof, the
    prevailing party shall be entitled to recover all of its legal expenses,
    including reasonable attorney's fees and costs (including legal expenses for
    any appeals taken),


                                     4 of 7

        and to have the same awarded as part of the judgment in the proceeding
        in which such legal expenses and attorney's fees were incurred.

     i) INTENTIONALLY DELETED.

     j) Captions. The paragraph contains captions as to contents of the
        particular paragraphs herein are inserted only for convenience and are
        in no way to be construed as part of this Assignment or as a limitation
        of the scope of the particular paragraph in which they are referred.

     k) Construction of Assignment. Words of a gender used in this Assignment
        shall be held to include any other gender, the words in a singular
        number held to include the plural, when the sentence so requires.

     l) Counterparts. This Assignment may be executed in several counterparts,
        each of which so executed shall be deemed to be an original, and said
        counterparts shall together constitute and be one and the same
        instrument.

     m) Entire Assignment. This Assignment contains all of the oral and/or
        previously written agreements, representations, and arrangements
        between the parties hereto, and all right which the respective Parties
        may have had under any written agreements and/or oral agreements are
        hereby canceled and terminated, and all parties agree that there are no
        representations or warranties other than those set forth herein.

     n) Invalidation. Should any part of this Assignment for any reason be
        declared invalid, such decision shall not effect the validity of any
        remaining portion, which remaining portion shall remain in full force
        and effect as if this Assignment had been executed with the invalid
        portion thereof eliminated. It is, therefore, declared the intention of
        the parties hereto that each of them will have executed the remaining
        portion of this Assignment without including therein any such part,
        parts or portion which may, for any reason, be hereafter declared void.

     o) Modification. No change or modification of this Assignment shall be
        valid unless the same shall be in writing and signed by all of the
        Parties hereto.

     p) Notices. Any and all notices, designations, consents, offers,
        acceptances, or any other communication provided for herein shall be
        given in writing by hand delivery, by overnight carrier, by registered
        or certified mail or by facsimile transmission and shall be addressed
        as follows:

               As to Pledgor:      Bankers Underwriters, Inc.
                                   360 Central Avenue, 17th Floor
                                   St. Petersburg, Florida 33701
                                   Att: David B. Snyder
                                   Telephone: (727) 823-4000
                                   Telefax: (727) 823-6518

               As to Lender:       Insurance Management Solutions Group, Inc.
                                   360 Central Avenue, 16th Floor
                                   St. Petersburg, Florida 33701
                                   Att: David Howard, President


                                     5 of 7


                              Tel#: (727) 803-2040
                              Fax: (727) 803-4093

          Notices sent by hand delivery shall be deemed effective on the date of
          hand delivery. Notices being sent by overnight carrier shall be deemed
          effective on the next business day after being placed into the hands
          of the overnight carrier. Notices sent by registered or certified mail
          shall be deemed effective on the third business day after being
          deposited into the post office. Notices sent by facsimile transmission
          shall be deemed to be effective on day when sent if sent prior to 5:00
          p.m. (the time being determined by the time zone of the recipient)
          otherwise they shall be deemed effective on the next business day.

       q) Representation Acknowledged.  The parties acknowledge that each party
          and its counsel have reviewed and revised this Assignment and that the
          normal rules of construction to the effect that any ambiguities are to
          be resolved against the drafting party shall not be employed in the
          interpretation of this Assignment or any amendments or exhibits
          hereto.

       r) Applicable Law/Venue.  This Assignment shall be construed in
          accordance with and governed by the laws of the State of Florida,
          without regard to choice of law provisions. Further, the venue for any
          action brought to enforce any of the provisions hereof shall be in a
          state court of competent jurisdiction in Pinellas County, Florida and
          any action commenced in any other forum may be removed to a state
          court of competent jurisdiction in Pinellas County, Florida.

IN WITNESS WHEREOF, the Parties hereto have set their hands and seals, the day
and year first above written.


"Pledgor"


BANKERS UNDERWRITERS, INC.,
a Florida corporation


By: /s/ David B. Snyder
    -----------------------
    Its Vice President
    Assistant Secretary
    (CORPORATE SEAL)


"Lender"


INSURANCE MANAGEMENT SOLUTIONS
GROUP, INC. a Florida corporation


By: /s/ D. M. Howard
    -----------------------
    Its President/CEO
    (CORPORATE SEAL)


                                     6 of 7

                                  EXHIBIT "A"

                           DESCRIPTION OF COLLATERAL

     All of Pledgor's right, title and interest in and to all of the following
described Collateral, wherever located, and whether now owned or hereafter
acquired, together with all replacements therefor and proceeds (including but
without limitation, insurance policies) thereof:

                                         DESCRIPTION
                                            OF
              PLEDGOR                    COLLATERAL
- ------------------------------------------------------------------------------
Bankers Underwriters, Inc., a      All accounts and contract rights (as those
Florida corporation                terms are defined by the Uniform Commercial
                                   Code as adopted by the State of Florida)
                                   with insurance agents, including but not
                                   limited to general agency agreements with
                                   respect to the sale of federal flood
                                   insurance.







                                     7 of 7

EX-10.7

                                                                   Exhibit 10.7

                   FURTHER ASSURANCE AND COMPLIANCE AGREEMENT

     For and in consideration of Ten Dollars ($10.00) and other good and
valuable consideration, and the funding of that certain Revolving Line of Credit
Master Promissory Note of even date in the amount of $7,000,000.00 (herein,
"Loan") from Insurance Management Solutions Group, Inc. (herein, "Lender") to
Bankers Insurance Group, Inc. and Bankers Underwriters, Inc. (herein
collectively, "Borrower"), the Borrower agrees to cooperate, adjust, initial,
re-execute and re-deliver any and all closing documents, including but not
limited to any Notes, Credit Agreements, and Affidavits if deemed necessary or
desirable in the sole discretion of the Lender in order to consummate or
complete the Loan from the Lender to Borrower or to perfect the Lender's lien.
It is the intention of the parties that all documentation for the Loan (herein,
the "Loan Documents") shall be an accurate reflection of the Lender's
requirements.

     The Borrower agrees and covenants to assure that the Loan and Loan
Documents conform to the Lender's requirements. The Lender is relying upon this
Agreement and the covenants contained herein in consideration for funding the
Loan to Borrower.

     The Lender shall have the right to bring suit to enforce the obligations
incurred in connection with this Agreement, and in the event any suit is
brought to enforce this Agreement, the Lender shall be entitled to recover all
costs and expenses incurred, including a reasonable attorney fee.

     DATED this 15 day of August, 2002.

WITNESSES:                  "Borrower":
                            Bankers Insurance Group, Inc., a Florida corporation

/s/ Nancy C. Haire          By: /s/ David B. Snyder
- --------------------        ------------------------
/s/ Harold David Holland        Its Vice President & Assistant Secretary
- --------------------
As to Borrower
                                (CORPORATE SEAL)


                            Bankers Underwriters, Inc.
                            a Florida Corporation

/s/ Nancy C. Haire          By: /s/ David B. Snyder
- --------------------        ------------------------
/s/ Harold David Holland        Its Vice President & Assistant Secretary
- --------------------
As to Borrower
                                (CORPORATE SEAL)

Accepted and Agreed this 15 day of August, 2002:


WITNESSES:                               "Lender":
                                         Insurance Management Solutions Group,
                                         Inc. a Florida corporation

/s/ Nancy C. Haire                       By: /s/ D.M. Howard
- -----------------------------------         ------------------------------------
                                               Its PRES/CEO
                                                  ------------------------------
/s/ Harold David Holland
- -----------------------------------
As to Lender
                                                     (CORPORATE SEAL)


                                       2

EX-99.1

                                                                    Exhibit 99.1

                WRITTEN STATEMENT OF THE CHIEF EXECUTIVE OFFICER
                         PURSUANT TO 18 U.S.C. SS. 1350

         Solely for the purposes of complying with 18 U.S.C. ss. 1350, I, the
undersigned Chief Executive Officer of Insurance Management Solutions Group,
Inc. (the "Company"), hereby certify, based on my knowledge, that the Quarterly
Report on Form 10-Q of the Company for the quarter ended June 30, 2002 (the
"Report") fully complies with the requirements of Section 13(a) of the
Securities Exchange Act of 1934 and that information contained in the Report
fairly presents, in all material respects, the financial condition and results
of operations of the Company.




/s/ David M. Howard
- ----------------------------------
David M. Howard
August 19, 2002

EX-99.2

                                                                    Exhibit 99.2

                WRITTEN STATEMENT OF THE CHIEF FINANCIAL OFFICER
                         PURSUANT TO 18 U.S.C. SS. 1350

         Solely for the purposes of complying with 18 U.S.C. ss. 1350, I, the
undersigned Chief Financial Officer of Insurance Management Solutions Group,
Inc. (the "Company"), hereby certify, based on my knowledge, that the Quarterly
Report on Form 10-Q of the Company for the quarter ended June 30, 2002 (the
"Report") fully complies with the requirements of Section 13(a) of the
Securities Exchange Act of 1934 and that information contained in the Report
fairly presents, in all material respects, the financial condition and results
of operations of the Company.


/s/ Anthony R. Marando
- --------------------------------
Anthony R. Marando
August 19, 2002